Pay Your Debts!


I thought this was an interesting graphic.  It says a lot about Washington and a lot about policies emanating from Washington.  There has been this idea that the federal government borrowing money expands the economy, which is good.  The idea is that the investment via borrowing will be recovered by increasing revenues in the future.  But that is not what the graph shows.  What is shows it exactly what we should have known would happen when we decrease the tax rate, while increasing borrowing.  The tax revenues do not grow (and they look to be on a downward trend), while the debt we owe increases.  I think Grandma could have explained that.  Why Washington politicians don’t get it I am unsure.  Reagan increased the debt.  It declined under Clinton (recall he balanced the budget).  The orange bar is the interest we owe.  Seriously!  We do not pay any principal.  Try that with your bank.  I recall a lot of people getting into trouble with that in 2007/2008.  Yet the real issue is the revenues.  Federal spending has been as much as 23% of GDP, yet Congress is keeping it at 18% of the current GDP going forward. That means the tax cuts from the past, have caught up with us.  We cut too much, and now we can’t pay the bills we need to pay.  The tax cuts did NOT stimulate the economy as Art Laffer and Jack Kemp have been telling us, and selling us, since Reagan.  Supply side economics is a failure.  And now we need to fix that problem and pay our bills!  Keep in mind that Clinton raised taxes, balanced the budget and the economy grew wildly (ok maybe too wildly).  But maybe there was less magi and more science in that policy than many gave his team credit for.  Maybe they were onto something that Eisenhower, Truman, Roosevelt, Kennedy and others had figured out (recall that prior to 1964, the tax rate for those earning over $200,000 per year was 90% – yes your read that right – ninety – 9-0 percent, and the economy still grew quickly).  Maybe Clinton got it right, and the others have had it wrong since 1980.  Maybe a little higher tax rates that allows us to pay our bills, and pay down some of that principal was just better fiscal policy and one we should return to if we want the economy to grow faster.  Just food for thought.

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