Saturday, August 25, 2012

The Debt As A Percentage Of GDP Argument

Liberal economists like Paul Krugman continue to argue that the current debt, as percentage of GDP, is still lower than it was following World War II.  And, yes it is.  But, not by much.  However, in making this argument, these left-wing economists seem to feel that there's room for more stimulus spending because, after all, we recovered quite nicely from all the debt that was accumulated during the Great Depression and  the war years. 

Well things have changed a lot since WWII.  For one thing, nearly half the population, today, pays zero taxes. In the years following the war, only about a quarter of the population paid no taxes; reaching a low of 16% by 1969.  In other words, we now have a huge debt with a lot less people available to pay it off.   At the same time, those who did paid taxes, back then, paid their taxes at a higher rate.  The lowest tax rate in 1945 was 22% on $2,000 of income; and, the top wage earners paid 91% on incomes in excess of $200,000.  Today, the bottom rate is only 10% and the top rate is 35%.

The bottom line is that the country was better able to pay off its debts following the war.  Today, liberal tax policies have created a situation where we have too few people paying too little in taxes to adequately address our deficit spending; which has gone up 57% under Obama.  This year alone, the "interest" on the  federal debt will be in excess of $430 billion dollars.  Next year, it will be closer to $500 billion.  Obama's solution?  Raise the taxes on the rich. Not cut spending.  But raising taxes on the rich will only result in a about $85 billion more in tax revenues next year.  That increase in revenues won't even pay off 20% of the interest payments on our debt.  Meanwhile, the debt will only continue to increase at a rapid rate.

To me, its like having $10,000 in credit card debt and, all you do every month is pay the minimum amount.  While doing this might avoid penalties, the compounding of interest and continued use of that credit card  will eventually send you to bankruptcy court.  And that appears to be something that the Krugmans of the world and Obama don't seem to understand.  Or, sadly, maybe they do!

References:

1945 Federal Tax Instructions: http://www.irs.gov/pub/irs-prior/i1040--1945.pdf

Percentage of Population Paying Taxes: http://blog.heritage.org/2012/02/19/chart-of-the-week-nearly-half-of-all-americans-dont-pay-income-taxes/

Debt as a Percentage of GDP: http://www.usgovernmentspending.com/federal_debt_chart.html

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