Opinion | Paul Olson: $30 trillion? Don’t look at me.
When the cheering of the crowd dies down after an election victory, officials often forget they are public servants with an important job to do. The current debt ceiling crisis is an apt case in point. The Republican-controlled House wants spending cuts before they agree to increase the ceiling on borrowing. We truly need some spending cuts as the budget deficit for 2023 is forecast to be $1.4 trillion. But the dishonesty in this approach is shown by the many GOP representatives who don’t want to specify what should be cut, and they refuse to discuss the Pentagon’s sacred budget or the reckless underfunding of Social Security and Medicare.
President Biden is also unconcerned about our addiction to borrowing as he proposed a long wish list of extravagant spending ideas in his recent State of the Union Address. The media focuses on how the parties are arguing about who is a bigger supporter of Social Security and Medicare. But the real story should be how both parties have mismanaged these entitlement programs and the entire federal budget for decades.
Our current disconnect from rational tax policy and budget management began four decades ago. From 1936 through 1981, the top individual tax rate for the U.S. was 70% or higher, even exceeding 90% from 1944 through 1963. During these years, the high tax rates were working against our free market economy and really clobbering entrepreneurs, hindering the incentive to invest and earn more income. The Reagan administration removed that roadblock by reducing the top individual tax rate to 50% in 1982. “It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth,” according to President Bill Clinton’s Council of Economic Advisors.
Unfortunately, this brilliant idea was combined with a 30% increase in defense spending so annual budget deficits averaged $167 billion per year during Reagan’s two terms. Next, Reagan and Congress forgot all obligation to be fiscally conservative and foolishly reduced the top individual tax rate to 28% in 1988. Though the tax rate was later raised, anti-tax fever infected all subsequent budget negotiations without any corresponding anti-debt sentiment. Since 1980 the U.S. government has not had sufficient tax revenue to pay its bills and has had to take on more debt for every year except 1998 through 2001.
Tax cuts are popular with voters, but we should elect representatives not to do what is popular but instead to manage government revenue and expenses effectively for the good of the taxpayers. Mythology about the Reagan tax cuts has generated some irrational ideas for governing: raising tax rates is always bad, tax cuts will produce more tax revenue, budget deficits are normal, and the national debt doesn’t matter.
Our current national debt is $31.5 trillion which amounts to $94,200 per U.S. citizen. Net interest payments on this borrowed money was $475 billion in 2022. This is one of the largest expenses in the budget and will increase significantly in 2023 due to the recent jump in interest rates. We are all harmed by the national debt because the high interest costs take money away from education, research and investment that might boost the economy, add jobs and increase tax revenue. We are fortunate to have a strong economy but the U.S. debt far exceeds our annual gross domestic product (GDP), increasing the risk of default and a financial crisis.
We should take a lesson from the good judgment shown by George H.W. Bush when he recognized the necessity of increasing taxes to help balance the budget even after making his “read my lips” promise in 1988 to not raise tax rates. Do we have any current members of Congress with that kind of courage and practical sense? The anti-tax members of Congress cannot just keep repeating their “cut spending” mantra. We will not be able to starve government enough to escape the years of insufficient tax revenue, borrowing to fund new programs and the high cost of servicing our national debt.
It is not necessary to make drastic changes to tax rates or spending. A couple percent increase in tax rates and a few percent decrease in spending in most departments over the next 10 years will balance the budget and start reducing the national debt. Could there be some waste in our $816 billion military budget for 2023? We can rescue Social Security and Medicare from the rapidly approaching zero balance in their trust funds with sensible adjustments to payroll taxes and benefits. I optimistically see the divided Congress as an opportunity for both parties to look good to their constituents for fixing the budget and reducing our nation’s debt.
The average person gives careful thought to managing their personal finances and avoiding excessive debt. Successful business operators know the importance of wise budgeting. Our local officials have to make prudent spending decisions. Why do we give those distant representatives in Washington a pass on fiscal responsibility? We need to vote out the incompetent money managers in the federal government and give recognition and votes to those who are willing to make the tough decisions needed to have balanced budgets.
Paul Olson’s column “A Friendly Conservative” publishes biweekly on Tuesdays in the Summit Daily News. Olson has lived in Breckenridge since 1995. Semiretired, he works at REI in Dillon and enjoys snowboarding, Nordic skiing and hiking. Contact him at email@example.com.
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