One of the key aspects of human efficiency is making decisions based on facts, data, and nonideological logic. With the federal government’s debt continuing to grow with no end in sight even though the public is more and more concerned, there is a relatively simple solution that would start to reduce the debt. And we need to do it now.
First some background – we had a huge debt at the end of World War II because of the cost of the war. At that point tax rates on the wealthiest were increased to 90% and the debt was reduced dramatically. In 1980 Reagan reduced the tax rates on the wealthy from about 70% to 50%. In 1988 the first Bush further reduced them to 30%. In the 1980’s is when the debt started to increase.
In 1992 Clinton raised the taxes to 40% which resulted in a balanced budget for a short while and a long economic expansion. In 2002 the second Bush again lowered taxes to 35% which is where we are today. But it is important to remember that tax breaks are larger than discretionary spending so the wealthy are actually paying much less. Now there is talk by Republicans of lowering the tax rate further, even with the huge debt that we have.
This is based on a belief in “trickle-down economics” or supply-side economics which believes that if you make the well-to-do even more prosperous via tax cuts that it will make the economy flourish which will eventually make the poor richer. This does not make any sense.
This has also been disproven in Kansas and Louisiana where it was tried 6-8 years ago. The budgets of both states are presently in bad shape. We do not want to repeat this mistake on a national level.
Business Insider reports that higher taxes on the rich do not hurt the economy. With the U.S. economy as late as it is in its cycle with a recession on the way, a tax cut would be irresponsible and the last thing we should be doing now.
Now we are at the point where the interest rates are starting to increase which will increase the amount that we have to pay to service the debt. Peter Schiff recently issued a warning that “the debt bomb is going to explode”.
In 2011, Warren Buffet proposed what became known as the “Buffet Rule” which proposed a minimum tax rate of 30% (probably assuming no tax breaks are allowed) on individuals making more than one million dollars a year. This was never implemented.
We need to practice Keynesian economics to lower the debt during good times. We need to take action now. Although we need to make small changes to Social Security and improve our health care system, which we will discuss in future blogs, we need to increase the tax rate on the wealthy to at least 40% with no tax breaks. Although this will not completely solve the problem, it will go a long way towards that goal. And based on past history as indicated above, this will have little impact on the economy. It will also be a move to decrease the ever-increasing gap between the rich and poor, to be discussed in an upcoming blog.
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