The United States has a deficit problem, and we don’t need extremist threats of a government shutdown to address the problem. We need members of Congress to actually understand what’s behind our ballooning federal debt and take action that includes the one thing that neither party in Washington seems willing to suggest: significant tax increases directed at high income earners and corporations.
Let’s do the math. For the past five years, under both President Trump and President Biden, the annual U.S. deficit has been running at an average of $2 trillion per year. That means the U.S. generates two trillion dollars less revenue from taxes than it spends.
According to Republicans, spending cuts represent the only way to get the deficit under control and they want the spending cuts focused on aid to the poor, the disabled, and the elderly.
So, for the sake of argument, let’s eliminate all of it. Zero out the low-income tax credit for the working poor, the food stamp program, federal housing subsidies, cash payments to needy families, school meals, home energy assistance, or aid to support abused and neglected children. Zero it all out and let every poor kid starve under a bridge somewhere. Deficit solved, right?
Hardly. All of those assistance programs amount to about eight percent of federal spending, or approximately $590 billion a year. If we eliminated all of it, the U.S. would still be running annual deficits above $1.4 trillion a year.
So, where else do we cut? Interest on the debt is currently consuming nearly ten percent of the budget, or more than all the “welfare” programs combined. Stopping those payments isn’t an option. Nor is cutting Social Security or Medicare, which even the Republicans declared off-limits in response to President Biden’s claim that they’re seeking cuts in those programs.
That leaves all of the rest of the federal government. Let’s say we fire every federal worker, shut down all our airports, eliminate food safety inspections, the border patrol, customs, and the Coast Guard, close the courts, eliminate transportation, education, and environmental funding, law enforcement, and close all the national parks and national forests. All of those functions, many of which are constitutionally required by the way, cost a bit under $890 billion combined, so we could cut the deficit to approximately half a trillion dollars.
Want to actually balance the budget? Then, on top of this, close every veterans’ hospital, and cut the Pentagon budget in half.
The government, of course, is not going to do anything like this, because it would result in every member of Congress being thrown out of office. It would also destroy the U.S. economy.
So, how did we end up in this mess where the federal government has spent an estimated $6.3 trillion in 2023 while likely taking in only $4.3 trillion in taxes?
Our spending has certainly increased, and there are many factors driving that increase, which we will explore next week in the second part of this editorial. For now, it’s worth noting that in 1960, the last full year of the Eisenhower administration, the federal government’s collected tax revenue amounted to 17.3 percent of the national Gross Domestic Product. In 2019, the last year before COVID destabilized the federal budget, the government took in about 16.3 percent of the nation’s GDP in tax revenue. In other words, overall taxation in the U.S. was actually lower in real terms in 2019 than in 1960.
We do, in fact, know how to balance the budget. As recently as 2000, under President Bill Clinton, the U.S. ran a budget SURPLUS of $236 billion. The federal government, at the time, collected tax revenues equal to 20 percent of the GDP thanks to a tax increase implemented by Democrats. Despite claims at the time that the Clinton tax increase would sink the economy and result in less tax revenue, we experienced an economic boom and a huge increase in federal tax revenues resulting in the largest surpluses in U.S. history.
Since then, we’ve had the Bush tax cuts, which overwhelmingly benefitted wealthy individuals, and the Trump tax cuts, which overwhelmingly benefited corporations, and deficits have predictably ballooned. In 1960, U.S. corporations paid in 23 percent of all federal tax revenues, an amount equivalent to about four percent of the GDP. By 2019, corporations were paying less than ten percent of federal taxes, amounting to just one percent of GDP. Restore corporate taxation to 1960 levels and we generate an extra $750 billion a year in taxes, wiping out nearly 40 percent of the deficit in one policy move.
The bottom line is inescapable: We can’t cut our way to a balanced budget. Significant tax increases, focused on corporations and the wealthy, have to be a major part of the solution. We’ll know Washington is serious about deficit reduction when tax increases become a serious part of the discussion. Until then, it’s just the usual posturing for the cameras.