It's not as if this problem hasn't happened before. Just as the problem of the decline of coal came around before in history, our current high debt levels happened before as well. So, why won't we look at the solution we used before?
The reason we won't look at the solution we used before is because we are not yet in an economic crisis. And, frankly, because most Americans don't care about history or learning from their previous mistakes and successes. "Those that fail to remember history are doomed to repeat it" has so much truth for modern Americans. But let's look at it, anyway.
That's a chart with two lines: in blue, the Debt/GDP ratio, and in red, the Revenue/GDP ratio. Notice in the blue line two peaks. The first starts during the Great Depression and peaks at the end of World War II, in 1945. The other peak hasn't occurred, but we are getting there. Notice the second peak started in 1982. I will give you a hint: that's the year of Reagan's first tax cut.
Here's another thing to notice: the red line, the ratio of Revenues to GDP, never varies that much. In other words, it doesn't take a large increase in Revenues, when gathered over a long time, to pay off a lot of debt. In fact, the ratio of Revenues to GDP has never grown over 20%, and has never dropped below 13% in the era since the Great Depression. A range of 7%. Yet, when the Greatest Generation faced paying off the debts run up fighting the Great Depression and World War II, they didn't hesitate to raise revenues, and that means taxes, to the upper range, so that the Debt/GDP ration was reduced from 120% in 1945 to 31% in 1980.
And hasn't fallen since. Because the Reagan Tax cuts and the Bush Tax cuts and the Clinton Tax cuts and the Bush II tax cuts and, yes, even the Obama Tax cuts, have driven that Debt to GDP ratio back up to 105% in 2016. And the Trump Tax cuts will simply extend the process.
Why? Why do we continue to do exactly the opposite of what has solved the process in the past?
It's pretty simple, when you look at how those revenues where gathered, and you will see why those tax cuts were put in place.
This chart is a bit more complicated, but not that much. The lines represent the percentage of income tax you would pay each year, between 1929 and 2012. The color represents your income, in constant 2012 dollars. So, the blue line represents a person with $10,000 in 2012 income. They would have paid a 2% tax in 1929 (on $754 of income), a 23% tax in 1945 (on income of $794), a 20% tax in 1960 (on income of $1269), a 15% tax in 1990 (on $6,100 of income) and a tax of 10% when their income reached $10,000 in 2012. By contrast, the grey line represents a person with $500,000 in 2012 income. That person would have paid 8.6% in 1929 (on $36,369 of income), a 52% tax in 1945 (on $39,200 of income), a 58.6% tax in 1960 (on income of $64,462), a 27.1% tax in 1990 (on income of $284634), and a tax of 30.4% on their $500,000 of income in 2012.
Sounds pretty bad if your income was the equivalent of $500,000 in 2012 dollars, right?
Yet, for all the protests of how entrepreneurial spirit is broken by high taxes, I have yet to hear anyone state that the progress made in the U.S. from World War II until 1980 was held back, dashed, destroyed, due to high taxes. That flies in the face of the history I have studied. In fact, I would venture to say that the phrase "Make America Great" is an attempt by some to go back to that period post WWII where jobs where plentiful, American manufacturing was supreme, exports were high, and America was the leader.
Isn't it about time we consider something that worked, instead of continuing the craziness of tax cuts and throwing people off medical care because we can't afford it? We can, we just need the will to stand up to those who have the most to gain.
