The Myth Of Insurmountable Debt

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April 7, 2016 by Chris Kite

To listen to conservatives talk, we’re at a point where the national debt is a national disaster of previously unseen proportions and there is no hope without drastic spending cuts, and, of course, tax cuts.

Not so fast. At the end of WWII our debt as a percentage of GDP was actually higher. Note in the chart below that gross public debt actually topped 120% of GDP in 1945.


Now I’m certainly not arguing that we don’t need to address the debt. But there is a way to deal with it and it doesn’t require fiscal austerity. Because as many know, after WWII we were able to draw down the debt while simultaneously building infrastructure. Note that the entire period from 1945 until Ronald Reagan became President in 1980 saw the gross national debt continuously decline. This was while we built the interstate highway system at a cost of over $329B ($506.7B in 2016 dollars) and spent $277M ($2B in 2016 dollars) on the Mercury space program, $1.3B ($8.3B in 2016 dollars) on the Gemini program, and $23.9B ($171.8B in 2016 dollars) on the Apollo program. We also spent $67B on the Korean war ($573B in 2016 dollars) and $173B on the Vietnam war (over $855B in 2016 dollars) during this period.

With total spending during this period of well over $2T, we were still able to decrease the national debt!

How? Well individuals and corporations weren’t paying such low taxes, that is how. The maximum personal federal tax rate was as high as 91% and no lower than 70% between WWII and the time Ronald Reagan gave away the country. The maximum personal tax rate today is 39.6%.

The maximum federal corporate tax rate during this period was as high as 52.8% and never lower than 46%. As compared to 35% today.

During this period, per capita GDP growth was fairly steady, other than the occasional recession. This is shown in the table below.

US Per Capita GDP by year

And during this period unions were strong and wage growth went to workers and owners (the wealthy) equally. But around 1980, when Ronald Reagan cut taxes on the rich, decreased corporate regulation, weakened unions, and shifted the entire economy to benefit the rich, things changed. Notice in the chart below that while the gap between productivity and wages was growing, that growth accelerated during the Reagan years.

Hourly Wage Growth.png

So the lesson we should all take is that with controlled spending and appropriate taxes, we can reduce the deficit in a controlled manner, without crippling the economy and without passing the bulk of the burden to the poor and middle class.

Republicans are quick to point out that you could take all the income from every American and not eliminate the debt. But we didn’t get into this situation in one year and we’re not going to get out of it in one year, either. We need to address the deficit with a reasonable tax and spending plan. Refusing to raise taxes on the rich or cut corporate and wealthy tax breaks is not going to get us anywhere in solving the problem.

We need progressive leadership in the White House and progressive majorities in the House and Senate to solve our debt problem.

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