Insights · July 28th, 2011
Watching the U.S. “debt crisis” unfold, I am reminded that to see the way forward, it is often good to look backward. History does not consist only of facts, but history is full of facts that cannot be ignored. In this case, it helps to see where the debt came from – this is essential to dealing with it. The New York Times provided such a summary in one simple picture on July 24.
(New York Times Editorial Graph)
We can see that going back to the tax rates prior to 2002 eliminates some 40% of the deficit that contributes to the debt. We have always borrowed to pay for wars, but not every penny. So, ending the current wars that are unpaid for eliminates much of the rest of the deficit. One could go further. The Institute for Policy Studies reported this spring that if the U.S. could return to the tax rates of 1961, after the Kennedy tax cut of that time, the resulting revenue would eliminate not just the annual deficit but the entire U.S. debt in about ten years. (This would take us back to the halcyon year of 2000 when the U.S. was running a surplus and the debt was set to disappear by 2014. Then came the tax cuts of the day, the wars, and the underfunded drug benefit program.)
I will simply remind everyone that the most prosperous period in U.S. history (1946-1979), when the great middle class was built and much of our legacy infrastructure was put in place, coincided with a period of higher taxes.
You get what you pay for, and it may just turn out that what you get for higher progressive tax rates is a thing we call a civilization. What you get when you refuse to pay taxes is something else, I am not sure what to call it, but probably not a civilization as we have known it.
