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Forum Post: Debt Fallacies.

Posted 12 years ago on Nov. 4, 2011, 2:46 p.m. EST by Philpux (643) from Mountain View, AR
This content is user submitted and not an official statement

Okay, spending needs to decrease. Agreed. But our revenues must increase. Not only does the government need to spend less, but also it needs to make more money.
First of all, the pre Reagan tax rate of 70% was only for families with a household income over 206K. Families earning the median income of roughly 13K in 1977 paid 22%. Now the highest earners pay a rate of 35%, and the median earners pay 25%. That means that tax rates for the wealthy are half what they were pre Reagan, and 3% higher for median income families. - (source: U.S. Internal Revenue Service.)
Secondly, Reagan did not create over 40 million new jobs as stated by conservative radio pundits, he created 16.1 million new jobs, but the population increased by roughly 20 million people. The net result was a reduction in unemployment of 1.5% from the beginning of his term. Indeed, Bill Clinton enjoyed the lowest unemployment rate in the last 30 years of 4.0%. - (source: U.S. Bureau of Labor statistics.)

Thirdly, history does show a correlation between tax rates and deficits. Tax rates increased steadily after WW2 up until Reagan. From WW2 until Reagan the U.S. debt fell consistently from a peak of 120% of GDP in 1945 all the way down to 36% of GDP in 1980. Ronald Reagan significantly reduced the highest tax rate, while keeping the median rates roughly the same. From 1980 to 1992 the debt rose to 63% of GDP. Clinton raised rates, and by the end of his presidency the debt was back down to 47% of GDP, and the deficit was 0. G.W. Bush drastically cut taxes for the highest earners, while keeping the median rates roughly the same, and by the end of his presidency debt was up to over 80% of GDP. (source: U.S. Commerce Dept.)

What's dizzying is that the tax situation is even more complicated than that. Because of loopholes and tax shelters, most of those in the highest tax bracket are not paying 35%. The current estimate is that families with incomes over 379K are paying roughly 17%, and that is only on regular income.

Another factor is the drastic reduction and qualification of long term capital gains. What used to be taxed at the normal adjusted income tax rate are now taxed at 15%. Most of the highest earner's income comes from capital gains, and many times the capital gains tax can be avoided altogether. One popular way to do that is to keep the funds offshore. - (sources: The Christian Science Monitor, The Wall Street Journal.)

Conservatives like to complain about our high corporate tax rate of 35%, but apparently that only applies to some corporations. The top 10 corporations in America, last year paid tax rates ranging between 6% and nothing. - (source: New York Times.)

What did they do with all that extra cash? They invested in emerging markets such as China, India, and Brazil. Revenue increases simply must be part of our plan. It can't all come from spending cuts. Now, I agree that austerity is a must, but by no stretch of the imagination can it be argued that lower taxes = lower debt.

13 Comments

13 Comments


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[-] 1 points by Lockean (671) from New York, NY 12 years ago

Solid, detailed analysis of tax policies by an OWSer - well worth the read:

http://www.brianrogel.com/the-100-percent-solution-for-the-99-percent

[-] 1 points by Philpux (643) from Mountain View, AR 12 years ago

ty. I'll check it out.

[-] 0 points by betuadollar (-313) 12 years ago

Would you care to respond to the fact that all past administrations have stolen from social security in an effort to reduce deficits?

[-] 1 points by Philpux (643) from Mountain View, AR 12 years ago

That is huge. It is criminal. It's not a partisan problem either. They have all done it. It is not the driving force behind the debt, however. Debt increase can, historically, be tied to tax revenue reductions.

[-] 0 points by betuadollar (-313) 12 years ago

My only point is that such statistics may be misrepresented in light of the ability to hide deficits through dubious and creative accounting methods which the general fund provides.

[-] 1 points by Philpux (643) from Mountain View, AR 12 years ago

Agreed.

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