Opinion: A second Gilded Age
|Published: 11-10-2023 6:00 AM
Doug Lowe, outdated lighting consultant, lives in Concord.
The creditworthiness of the United States provides the foundation upon which all international trade is built. Ours is the financial capital of the world. The developed countries throughout the world peg their currencies to the U.S. dollar. And now, the right-wing Republicans have put that creditworthiness at risk by claiming that we carry too much debt.
The amount of the U.S. debt is not critical. Alexander Hamilton, our first Secretary of the Treasury, demonstrated that a national government is almost obligated to carry debt. It is more important to keep the balance of financial considerations under control. That balance can be evaluated by comparing it to the experience of millions of American citizens.
Think about your own experience with a home mortgage. The amount of money that a family can borrow is gauged on the homeowner’s income and his/her prospect to carry and then repay that debt. Likewise, a nation’s ability to carry debt can be compared to its ability to generate income. If a nation does not collect enough money through taxes it will generate an annual deficit. Deficits will add to the total national debt.
So, how does one evaluate the size of our national debt?
The most common measure compares the size of the debt to the size of the economy that supports it. Simply stated, one asks: “What is the debt as a percentage of the Gross Domestic Product?” The current debt, as of Oct. 12, 2023, is $33.52 trillion. GDP was $25.467 trillion at the end of 2022. A current estimate indicates $27.62 T.
That calculates to a debt of 121% of GDP. Yes, that is historically high. (In 1945, working to pay off the costs associated with WWII, the ratio was 114%). But we have been through a historically difficult period. The Republicans seem to ignore that the Trump administration added over $7 trillion (a 20% increase) to the debt. That additional debt was added by tax cuts aimed at the wealthiest 10% of the population. Without that tax cut, the ratio would be 103.7%.
The Biden administration’s Inflation Reduction Act allocated more funds for the IRS. That has, so far, led to the recovery of $160,000,000 from 275 individuals. The Republicans are vigorously fighting to defund the IRS. In 2021, taxes owed, but not paid, were $688,000,000.
We should also consider some tax history.
The top marginal income tax rate was 93% in 1945. Today the top marginal income rate today is 37%. Where did that reduction of 56% go? (Very few people have a taxable income over $693,750).
The amount of wealth excluded from the estate tax was $600,000 as recently as 1997. Today a total of $12,920,000 is exempt from the estate tax. Also, the estate tax rate has been reduced from 55% to 40%. (Saving about $7,000,000 in tax liability for the beneficiaries of an estate valued at $13,000,000).
In the U.S. over the last 30 years, the growth in income of the bottom 50% has been zero. The income of the top 1% has grown by 300%.
If the aggregate income of the bottom 90% had adhered to the patterns established in the 1950s, their total income in 2018 alone would have been $2.5 trillion higher.
Another useful comparison is found in looking at U.S. tax policy compared to other advanced economies. In Europe, the average tax load is 35%. In the U.S. is 24.7%. Also of some significance is a breakdown of how that money is spent. One consistent complaint from the Republicans is the fact that the government spends money on, to quote Ronald Reagan, “welfare queens.” The money Reagan was referring to is called “social spending.”
Social spending in the U.S. clocks in at 17% of GDP. It is 18.4% in Great Britain, 25% in Germany, and 30% in France.
Theodore Roosevelt spoke to the underlying problem in the early 20th century. He said, “A small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power could destroy American democracy.” He was commenting on events that shaped the first Gilded Age. He was expressing his concern about the concentration of wealth that had occurred during the era of “The Robber Barons.” Folks, we are now in a second Gilded Age. The concentration of wealth has never been more severe. The middle class is being squeezed out.
Could this possibly mean that Republican policy is a bit ingenuous with concern about the size of the debt? Is it even worth considering that a small group of very wealthy and economically powerful men are working to destroy American democracy?
What do you think?