The truth about spending
The Republicans are demanding that the $31.4tn federal debt be reduced and government spending curtailed — thereby giving cover to Republican efforts to hold America hostage by refusing to raise the debt ceiling.
When they’re in power, they rack up giant deficits, mainly by cutting taxes on corporations and the wealthy (the same since wealthy investors are the major beneficiaries of corporate tax cuts).
Not only is the Republican story false, but it leaves out the bigger and more important story behind today’s federal debt: the switch by America’s wealthy over the last half century from paying taxes to the government to lending the government money.
Not only has the wealthy income tax rate dropped, but other taxes that hit them hardest, such as the corporate tax, have also declined.
Even as the rich have accumulated unprecedented wealth, they now pay a lower tax rate than middle-class Americans.
Trump’s 2017 tax cut — largely a handout to the rich — helped push the tax rate on the 400 wealthiest households below the rates for almost everyone else.
One of the biggest reasons the federal debt has exploded is that tax cuts on corporations and wealthier Americans have reduced government revenue.
In the first full year of the Trump tax cut, the federal budget deficit increased by $113bn while corporate tax receipts fell by about $90bn, which would account for nearly 80% of the deficit increase.
Meanwhile, America’s wealthy have been financing America’s exploding debt by lending the federal government money, for which the government pays them interest.
Now, the government pays the wealthy interest on their loans to finance a swelling debt caused largely by lower taxes on the wealthy.
This means that a growing portion of everyone else’s taxes are going to wealthy Americans in the form of interest payments rather than paying for government services that everyone needs.