By HEATHER COX RICHARDSON*
The debt ceiling crisis may have something to do with Republicans' determination to cut taxes on the rich at all costs.
Both President Joe Biden and Speaker of the House Kevin McCarthy (Republican Party/California) have publicly stated that the US will not enter into default. They are negotiating the budget. For my part, I began to wonder whether the whole debt ceiling crisis has something to do with the Republicans' determination to cut taxes on the rich at all costs.
When Ronald Reagan called for tax cuts in 1980, he argued that such a cut would concentrate money in private hands, allowing cash-rich investors to build the economy. This growth would keep tax revenues stable even with lower rates. That was the argument, but it never came to fruition. Indeed, a 2022 study by political economists David Hope and Julian Limberg shows that “tax cuts for the rich … do not have any significant effect on economic growth or unemployment” but “lead to greater income inequality, both in the short and medium term”.
Indeed, Estelle Sommeiller and Mark Price of Economic Policy Institute, an independent, not-for-profit think tank, noted in 2018 that the bottom 1% of all US households earn 21% of all US income, earning 26,3 times more than the poorest 99%, whose median income is slightly more than $50.000 a year. On average, in the US, a person would need an annual income of just over $420.000 to be in the top 1%. In 2020, annual wages for the top 1% grew by 7,3%, while those of the bottom 90% grew by just 1,7%.
A 2020 study by Carter C. Price and Kathryn A. Edwards of RAND Corporation, showed that changes in economic distribution systems over the past forty years have shifted an impressive $50 trillion upwards out of the hands of the poorest 90% of Americans. (The national debt is currently about $31,5 trillion.)
Yet today's Republicans continue to insist that cutting taxes promotes growth. Just today, Representative Bob Good (Republican Party/Virginía) spoke with journalist Katy Tur to defend his support for extending Donald Trump's tax cuts, which are due to expire in 2025 and which the non-partisan Congressional Budget Office estimates that will add $3,5 trillion to the debt. Bob Good insisted that the tax cuts are "encouraging the right things".
At the end of a White House meeting, Kevin McCarthy told reporters he would not consider reversing Donald Trump's 2017 tax cuts for the rich and business. “The problem is not the recipe,” he insisted. “The problem is the expense”.
But Donald Trump's tax cuts and increased spending by the Trump administration, even before the pandemic, ended up adding $7,8 trillion to the national debt, about $23.500 for every person in the country. The annual deficit increase under Donald Trump was the third largest of any administration, relative to the size of the economy. It was surpassed only by George W. Bush and Abraham Lincoln. Bush, of course, led the US into two foreign conflicts that were financed almost entirely through debt (in the past, the US paid for the war through taxes and war bonds), after Congress cut taxes by about 8 % for the richest Americans. Abraham Lincoln faced a Civil War.
“It's not that Americans are taxed too little, it's that Washington spends too much,” Russ Vought, Donald Trump's interim budget director, wrote in 2019. He was advocating Trump's 5% budget cuts for discretionary spending unrelated to defense.
President Joe Biden's 2024 budget proposes to reduce the federal deficit by three trillion dollars over the next decade by raising taxes on those earning more than $400.000 a year. His budget would effectively repeal Donald Trump's tax cuts for the wealthy, restoring the top tax rate to 39,6% instead of the 37% set by the 2017 cuts. which declined in 21 to 2017%, down from a high of 28% before Donald Trump's tax cuts.
Joe Biden's budget also provides for taxing capital gains at the same rate as income tax for those earning more than $1 million, and provides for a new tax on unrealized capital gains. It also seeks to correct the loopholes that allow people with high incomes to avoid paying taxes. The funding for Internal Revenue Service (IRS), passed under the Inflation Reduction Act, will allow the IRS to prosecute tax offenders who earn more than $400.000 a year, which will allow them to earn an estimated $204 billion by 2031.
But Republicans say they won't agree to any kind of tax increase, and right-wing extremists in the Freedom Caucus they said they wouldn't agree to anything but the bill that Kevin McCarthy pushed through the House, promising it would never become law. That bill, called “Limit, Save, Grow,” would cut discretionary government programs by at least 18%—more so if Social Security, the Medicare and veterans' benefits are not included. “My conservative colleagues, for the most part, support “Limit, Save, Grow,” and don't think we should be negotiating with our hostage,” said right-wing Representative Matt Gaetz (Republican Party/Florida).
As Catherine Rampell, in the newspaper Washington Post, he pointed out last week, the bill also obliges Congress to pass all “important” regulations proposed by a government agency, with the recognition that Congress is unlikely to agree to any such regulation, thereby dismantling the government. federal.
Senator Rick Scott (Republican Party/Florida), who, before the 2022 elections, called for the repeal of all laws every five years, forcing Congress to pass on all discretionary expenses, returned today to defend the idea that Democrats who call for solving the deficit through taxation are socialists. Ridiculing recent travel advisories by LGBTQ, immigrant, and black rights organizations that warned against visiting Florida, he issued a “formal travel advisory” to “socialists” “in direct response to the Joe Biden administration’s attempts to erase capitalism.” and the system that brought prosperity to Florida and the entire United States.”
And yet, it was the Republican Party that originally set the pattern of resorting to increased revenues to allow the government to meet its financial obligations, a pattern that members of both parties relied on until 1981. In 1861, faced with the need to finance the Civil War, members of the Republican Party invented the US income tax and graduated it to ensure that “the burdens would be more equitable to all classes of the community, most especially to those who are able to pay them.” endure,” as Senator William Pitt Fessenden (Republican Party/Maine) put it.
Justin Smith Morrill (Republican Party/Vermont) agreed. “The burden [of] taxation should be apportioned equally,” he said, “not on each man an equal amount, but a tax proportionate to his ability to pay.” The government had the right to "claim" 99% of a man's property for an urgent need, Morrill said. When the public demanded it, "the property of the people... belongs to the government."
Far from opposing taxes, Americans have asked their congressmen to raise them, concerned about the growing national debt. In 1864, Senator John P. Hale (Republican Party/New Hampshire) said: “The condition of the country is singular... I dare say it is an anomaly in the history of the world. What do the people of the United States ask of this Congress? To withdraw taxes? No sir, they ask you to increase them. The universal cry of this people is to be taxed”.
These taxes helped to pay for the war and, after it, to pay off the debt. And in 1866, when Confederate-sympathetic Democrats tried to undermine support for the government by altering the terms of that debt to make it less valuable, the Republicans wrote into the Constitution that "the validity of the public debt of the United States, authorized by law , including debts incurred for the payment of pensions and awards for services rendered in suppressing insurrection or rebellion, shall not be questioned”.
*Heather Cox Richardson is a professor of history at Boston College (USA). She is the author, among other books, of To Make Men Free: A History of the Republican Party (Basic Books).
Translation: Fernando Lima das Neves
Originally published on newsletter by the author
References
https://www.washingtonpost.com/opinions/2023/05/16/congress-debt-limit-regulation-reins-act/
https://www.cbsnews.com/news/afghanistan-iraq-wars-debt-6-trillion-interest/
https://www.propublica.org/article/national-debt-trump
Russ Vought, “OMB Acting Director Russ Vought: Spending addiction threatens American economic resurgence,” Fox News, March 11, 2019.
https://www.vox.com/money/23634085/biden-2024-budget-billionaire-tax-capital-gains
https://academic.oup.com/ser/article/20/2/539/6500315
https://tax.thomsonreuters.com/blog/understanding-the-inflation-reduction-act-of-2022-irs-funding/
https://eprints.lse.ac.uk/107919/1/Hope_economic_consequences_of_major_tax_cuts_published.pdf
Quotes from Civil War congressmen in my The Greatest Nation of the Earth: Republican Economic Policies during the Civil War (Harvard, 1997).
https://time.com/5888024/50-trillion-income-inequality-america/
https://www.rand.org/pubs/working_papers/WRA516-1.html
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