Soak the Rich?
By Patrick F. Cannon
Unless you’ve stopped keeping up with national politics (and who could blame you?), you may have noticed that President Biden wants to return the top income tax rate to 39.60% to help pay for his six trillion dollar budget. Even with this tax increase on folks making $400,000 a year or more, deficits are still going to be about $1.2 trillion a year. Yikes! Of course, if projections hold true (!!!), the budget will be in balance sometime around 2035.
For the record, the last year we had a budget surplus was 2001, the year Bill Clinton left office. Good old Bill; for all his many faults, he even produced some surpluses! The top tax rate during his entire term was the same 39.60%. When the first income tax was levied in 1913, the top rate was a staggering 7.00%! When we entered World War I in 1917, it jumped to 67.00%. It settled in the 25.00% range for most of the 1920s. It jumped to 63.00% and higher during the Depression, then peaked at 94.00% in 1944-45 to help pay for World War II. As late as 1963, it was still at 91.00%. (Of course, because of deductions and loopholes, no one really paid the top rate, nor does now.)
Reganomics reduced it to a low of 28.00% by 1988; since then it’s been in the 30s. If you look at the history of the top rate since 1913, it has mostly been higher than today’s 37.00%, which was lowered by the Republican Congress to please what’s his name, and their donors. In addition, the top corporate tax rate, which had been between 45 and 50% since World War II, was reduced in 2018 to 21%. President Biden wants to increase the top individual rate to 39.60 (i.e., roll it back) and the corporate rate to 28%. This would please some of his “progressive” voters who are always happy to soak the rich.
The problem is that it won’t make much of a dent in actually paying for his proposed budget. For that, he would do what both Democratic and Republican administrations have done for far too long: borrow the money. As people who have bought a home in recent years know, interest rates are very low – not much more than 2.5% for a 30-year mortgage. The Federal government is paying even less interest for the dough it borrows, currently about 1.5%. From what I could find, it seems the Biden plan projects interest payments might slowly rise to 3.2% by 2030. Rose colored glasses? Since 1988, interest rates have been higher than 6% more than they have been lower. What would happen to the president’s projections if the rate rose to 6% rather than three?
Everyone knows, or should know, that the national debt now exceeds the nation’s gross domestic product (GDP). It is now 129% of GDP, even higher than it was in the last years of World War II. You can find economists who think this is hunky dory, but is it really?
If we had two rational political parties, we might find a way out of this growing dilemma, but we don’t. One wants to redistribute the country’s wealth, but doesn’t have the guts to go all the way, while the other just says “no.” At my age, I may not live to see the comeuppance. You know, when we turn into Greece.
Copyright 2021, Patrick F. Cannon