How Do We Pay For This?

A New Deal for the 21st Century would require many new government programs.  How do we pay for this?  Well for one thing we stop giving the wealthy big tax cuts.   America does NOT have the highest taxes in the developed world.  Not even close.  The tax rate for the wealthy is way lower than other countries.

Americans clings to the idea that what they earn should not go to the government.  In some ways I would agree since America is so stingy in helping its citizens.  Americans balk at the idea of taxes to help fellow citizens but barely blink at billions spent to help corporations.  Elsewhere, people know that their tax dollars come back to them in benefits that makes their lives better.

Most tax increases are going to effect the top wage earners.  But politicians instill the fear of tax hikes in Americans of every earning level.   I will show you that low taxes have not helped the average worker in nearly 30 years.   However, higher taxes will help the average worker tremendously by providing the education, jobs and benefits that will restore the promise of the American Dream.

Here are charts showing that the US tax rates are very far from the highest for corporate or personal taxes.

What about the increasing national debt?  An interesting comparison is a chart of top federal income tax rates over the years and a chart of national debt over the years.   Refer back to these as this discussion proceeds.

 

Taxes went down during the Roaring Twenties.  Except it was roaring only for the well to do.  The income and wealth disparity between the poor and the rich grew until the crash that started the Great Depression.  The New Deal raised taxes again to pay for the programs that pulled America out of the nation’s most crushing  economic depression.  The New Deal policies were in force from 1933 to 1937.  In 1941 the US entered into WWII.  That cost far more than the New Deal as shown in the national debt at that time.   Notice that tax rates were high to pay for the New Deal and WWI and stayed high until 1965.  Even with high taxes  there was great prosperity  and a time of enormous growth of the middle class and tremendous increases in standards of living.

I must state that it is a bit simplistic to compare taxes to national debt as the sole factors to consider. There are many other factors that need to be considered about tax cuts and the economy.  But for this conversation you will see enough without the many other factors involved in economic analysis.

Take a look at a chart of income levels over time.

During the years of high income taxes, the lowest incomes rose.  The 70’s saw stagnant increase in wages.  Then President Reagan introduced Reaganomics in the 80’s.  Lowering taxes to stimulate the economy and expecting that the benefits to corporations would trickle down to the working people.  Take a look at the change in income chart again.  Since Reagan, the highest wage earners had the fastest growth for 20 years.   While this chart does not show past 2010, we all know that the top wage earners continue to see increases at higher and higher rates while most others have  stagnant or falling effective incomes.

Now take another look at the tax rates again.  As tax rates dropped so did wage growth for the lowest paid workers.  Taxes have remained low for 30 years.     In that time, workers’ wages have been stagnant while CEO wages went up astronomically.  Wages stayed level while we saw large increases in worker productivity.

The lower taxes failed to benefit the average American. 

The lower taxes fueled the increasing national debt. 

We can afford to spend money to benefit American citizens.  We just can’t do that while making the rich richer.  It is time to find a way to help all Americans and that requires that those most fortunate pay taxes more in line with what the wealthy in other countries pay.

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