There are so many misconceptions and falsehoods swirling around the upcoming debt ceiling debate that people don’t know what to think. Today’s newsletter from Robert Reich pushes aside the lies and cuts to the core of things, including why the nation needs to keep borrowing more to pay its bills.
The biggest story you’ve never heard about today’s federal debt
America’s wealthy used to pay taxes to support the nation. Now, they lend it money and collect interest from the rest of us.
31 January 2023
Friends,
The dire warnings of fiscal hawks are once again darkening the skies of official Washington, demanding that the $31 trillion federal debt be reduced and government spending curtailed (thereby giving cover to Republican efforts to hold America hostage by refusing to raise the debt ceiling).
It’s always the same when Republicans take over a chamber of Congress or the presidency. Horrors! The debt is out of control! Federal spending must be cut!
Not only is the story false, but it leaves out the bigger and more important story behind today’s federal debt: the switch by America’s wealthy over the last half century from paying taxes to the government to lending the government money.
This back story needs to be told if Americans are to understand what’s really happened and what needs to be done about it. Republicans won’t tell it, so Democrats (starting with Joe Biden) must.
A half century ago, American’s wealthy financed the federal government mainly through their tax payments. Tax rates on the wealthy were high: Under Republican President Dwight Eisenhower, they were over 90 percent. Even after all tax deductions, the wealthy typically paid half of their incomes in taxes.
Since then — courtesy of Ronald Reagan, George W. Bush, and Donald Trump — the effective tax rate on wealthy Americans has plummeted. Even as they’ve accumulated unprecedented wealth, today’s rich are now paying a lower tax rate than middle-class Americans. (The 400 richest American families paid a tax rate of just 3.4 percent between 2014 and 2018, while the rest of us paid an average tax rate of 13.3 percent.)
One of the biggest reasons the federal debt has exploded is that tax cuts on wealthier Americans have reduced government revenue.
Meanwhile, America’s wealthy are financing America’s exploding debt by lending the federal government money, for which the government pays them interest.
As the federal debt continues to mount, those interest payments are ballooning — hitting a record $475 billion in the last fiscal next year (which ran through September). The Congressional Budget Office predicts that interest payments on the federal debt will reach 3.3 percent of the GDP by 2032 and 7.2 percent by 2052.
The biggest recipients of these interest payments are not foreigners but wealthy Americans who park their savings in treasury bonds held by mutual funds, hedge funds, pension funds, banks, insurance companies, personal trusts, and estates.
Hence the half-century switch: The wealthy used to pay higher taxes to the government. Now the government pays the wealthy interest on their loans to finance a swelling debt that’s been caused largely by lower taxes on the wealthy.
This means that a growing portion of your taxes are going to the wealthy in the form of interest payments, rather than paying for government services everyone needs.
So, the real problem isn’t America’s growing federal budget deficit. It’s the decline in tax revenue from America’s wealthy combined with growing interest payments to them.
Both are worsening America’s already horrific inequalities of income and wealth.
What should be done? Reduce the debt by raising taxes on the wealthy.
This back story needs to be told. Please spread the word.
Whether it is interest paid for the bovernment, profits after price-gouging, interest on credit card debt, profits on weapons maufacturing, etc., etc., etc., the money flows to the wealthy from the less-than-wealthy. The inequity between the two is growing faster than people realize. Things can only get worse!
LikeLiked by 1 person
Remember everyone complaining about high gas prices last year? Well, guess what? Exxon’s NET PROFIT for 2022 was $56 BILLION! So no, we weren’t just paying for the increase in demand or the supply chain issues … we were paying for new yachts and mansions for greedy assholes!
LikeLike
Exactly. And for bank accounts so full of money it will never see the light of day again.
LikeLiked by 1 person
And those who benefit from this $56 billion will pay a lower tax rate than the average wage earner. Grrrrrrrrrrrrrrrrrrrrr
LikeLike
Great post Jill, as usual! 👍🏻
Btw, I published Part 3 (finally) of my A New U.S. Constitution, if you haven’t forgotten about the series. 😉 😄
LikeLiked by 1 person
Thanks, Prof!
I saw your latest post hit my inbox earlier, and I have set it aside to read later today. In all honesty, I will need to go back to the beginning of the series, for I had rather forgotten!
LikeLiked by 1 person
Jill, for all the playing-chicken the Republicans are doing with the debt ceiling, the GOP pushed through a tax bill in December 2017 that increased the debt by roughly $2 trillion while reducing taxes on the wealthy and corporations. Plus, after saying he would deal with the debt during his 2016 campaign, a Republican president with a Republican Congress for two years did NADA with the debt, except for the aforementioned increase. Democrats could do a lot more with the dealing with the debt, but this false bravado by Republicans masks that they lag what Democrats have done with reducing the debt. Keith
LikeLiked by 2 people
Agreed on all counts!
LikeLike
Why can’t I Reblog this? ;-( . . .
LikeLike
Pingback: Fact Vs Fiction — Filosofa’s Word | Ned Hamson's Second Line View of the News