Tax Cuts and the Deficit

Look at just five years and the income and taxes paid by the richest 1%. In 2006, the richest 1% made over $388,806.

year    income   taxes   average rate

1986      285. 2       94.5       33.1%
2003       985.8     268.6        24.3
2004    1,054.6     256.3        23.5
2005    1,306.4     306.9        23.1
2006    1,791.9     408.4        22.8

Consider the revenue that could have been raised if the top 1% paid the same tax rate in 2003-06 that they did in 1986. In 2003 it would be $93 billion. In 2004, $126 billion. In 2005, $159 billion, and in 2006, $185 billion for a total of $563 billion in just four years.

The deficit resulted from Reagan tax cuts

In 1980 the National Debt was $907.7 billion. By 1985, it had doubled to $1,823.3 billion and by 1989 had tripled to $2,857 billion and by 1991 it had quadrupled to $3,665 billion. Was that because of spending?  Spending did grow by 112% in the 1980s, but it also grew by 112% in the 1960s and by 202% in the 1970s when the debt did not grow by $2.7 trillion in those decades. Taking inflation into account, spending grew by 57% in the 1960s, by 41.9% in the 1970s and by only 35.3% in the 1980s. And it was in the 1980s that the deficit exploded.

According to standard economy theory, deficits are caused by mostly wars, recessions, and, since the 1980s, by tax cuts.

History of the National Debt is shown here

The trouble in the 1980s was slow and decreasing tax revenue. Between 1981 and 1982 revenue only grew by 3.1%. Between 1982 and 1983 it fell by 2.78%. Because income taxes went down and FICA taxes went up, an increasing percentage of revenues came from FICA taxes, from 32.5% in 1980 to 36.3% in 1989. That extra money added to the debt, as it became debt owed to future retirees.

Cutting spending NOW is not a good idea

Spending is way up since Obama took office. Part of that is a matter of necessity. As people lose their jobs, they become eligible for government assistance from unemployment insurance to food stamps to Liheap. We cannot cut that spending unless we eliminate those programs.

Another part has been the failure of businesses like AIG, General Motors, and the financial sector in general. The financial bailout was not popular, but I believe it was necessary. Our complex economy depends on a functioning banking system, and to let it fail would have been devastating.

Jenkins, and many in the media, have promoted the idea that because we the people are tightening our belts in these tough times, that the government should too. That shows a lack of understanding. For one thing, the government is not just a spender, it is an employer. If government tightens its belt that means it is either laying people off, or cutting back on hiring, or both. We the people are not just tightening our belts, we are hoping to keep our jobs, or are looking for new jobs. For the government to cut jobs and reduce hiring does not do job seekers any good.

There are stories on the news all the time that show this. Just today, April 13, KMBC was talking about North Kansas City Schools. Because of budget problems, they are talking about letting 30 teachers go, and also said that they have 50 positions that they are not filling. For governments at all levels to cut jobs and stop hiring does not help an economy that is already loaded with job seekers. Quite the opposite.  The job seeking public does not need potential employers to be tightening their belts.

In other ways, when government spends money on supplies or projects, it provides income to business. Again, if the government cuts back, it will make the situation worse. If the government postpones highway repair because of a tight budget, then not only do the people get rough roads, but some construction workers then don't have jobs. Their loss of income means they will not eat out as much and will not buy new furniture or computers.  In that way, government cuts ripple through the economy in a downward spiral.

Dean Baker calls this obvious "The most obvious effect of reducing the budget deficit right now would be to raise the unemployment rate, slow economic growth, and lower investment, thereby leaving a less productive economy for our children and grandchildren."  Yet Lynn Jenkins claims to be concerned about the deficit now because of her daughters. While calling for policies that would leave them a less productive economy.