In my last post here, I pointed out how the national debt has risen to over $19 trillion, and is now so large that the interest on the debt, in just a few years, will exceed the entire military budget. This follow up post is intended to make clear how truly outrageous this is. The graph is from Emmanuel Saez (U. Cal, Berkeley).
First, the U.S. population is about 323 million, so the debt amounts to about $59,375 per capita for the bottom 99% of income earners and their families. That’s nearly $240 K for a family of four. It will never be repaid, and obviously not by the bottom 99%.
Second, the high inverse correlation between top income tax and capital gains tax rates and the top 1% share of income is easy to explain: The top 1% gets to keep what it doesn’t pay in taxes.
Third, until this outrage, countries ran up huge debts only when they had to, in emergencies, mainly so they could finance war efforts. All nations knew they had to repay those debts eventually, or they would lose the ability to borrow. The current $19 trillion U.S. debt, however, was not incurred to pay for any exigency. In fact, the last of our WW II debt was almost paid off when Ronald Reagan moved into the White House. The whole $19 trillion has been incurred since then, courtesy of the Reagan Revolution. There was no emergency: these debts were incurred SOLELY to finance tax reductions for the wealthy.
In effect, weary of paying high taxes on personal and corporate income, our hyper-wealthy corporate leaders decided that they would rather lend the federal government the revenues it needs, making money on bond interest, and let the lower income groups pay taxes and pay them their interest income.
Since Reagan, all GOP Administrations have lowered top taxes as much as politically possible: The top rate was reduced from 91% during Eisenhower’s last term, has been reduced as low as 28%, and is now at 40%. (Sorry, I don’t yet have a jpeg for the latest version of this graph.) Trump is poised to lower the top rate to a new record low.
Fourth, this is the road to fiscal disaster. Reagan himself greatly increased his budget, with a massive military build-up. Trump is now scrounging around for other programs to cut to raise the $54 billion military increase he proposes. Alas, other discretionary programs are mostly already threadbare. About all that’s left are the non-discretionary Medicare, Medicaid , and Social Security programs. The bottom 99% provides almost all that money, and, of course, the top 1% wants to take it too.
This whole fiasco has set up what the classical French economist Jean-Baptiste Say called a “perpetual annuity” for federal creditors, since the interest on the debt, which the Congressional Budget Office in 2014 projected will rise to $755 billion by 2026 (exceeding projected DOD costs), must be paid. All CBO has been willing to say publicly is that this situation cannot continue “indefinitely.” No kidding: Perhaps a good time to start turning it around would be now, when our fearless leaders in Washington are scrounging around for entire agencies (EPA anyone?) to eviscerate or dismantle.
Fifth, this whole fiasco recklessly endangers the U.S. and world economies. Without the failure of mainstream “neoclassical” economics, led by Paul Samuelson, to figure out and explain how market economies actually work, none of this would have happened. Trump and the entire GOP rely on the neoclassical trickle-down myth: This has, in fact, become the biggest con in U.S. (world?) history. My next post will explain why the massive inequality engendered by this scam does not stimulate, but actually reduces, economic growth.
I discuss taxation and debt in detail in Chapters 13 and 14 of my book Reinventing Economics: The Failure of Capitalism and The Economics of Inequality (May, 2016) now available only as an e-book at Amazon Kindle. I’m writing a shorter follow-up book. This is all rather straightforward, and I assume that the top economists on the subject -- including the French economists Emmanual Saez and Thomas Piketty, the British economist Gabriel Zucman , and Joseph Stiglitz -- have not actively campaigned for a huge tax increase at the top because they must protect their professional status and their careers. I don’t have that problem.
Regardless, the mainstream media have ignored all of this.