With Republicans now in charge of the U.S. House of Representatives under Speaker Kevin McCarthy’s leadership, they are once again arguing with Democrats over the United States’ debt ceiling. Democrats, along with many economists, are warning that if the U.S. defaults on its debt obligations, that event could trigger a major financial crisis.
Far-right Republicans in the House Freedom Caucus, meanwhile, are demanding big spending cuts. And many Democrats are emphasizing that cuts to Social Security and Medicare should not be on the table.
Liberal economist Robert Reich, in an op-ed published by The Guardian on February 1, agrees with Republicans and Libertarians that the United States’ federal deficit is too large. But he disagrees vehemently with the right on the cause. Rather than blame social programs, Reich argues, Republicans need to be intellectually honest and acknowledge tax cuts for the ultra-rich as a key factor.
“When they’re in power,” Reich explains, “(Republicans) rack up giant deficits, mainly by cutting taxes on corporations and the wealthy — which amount to the same thing, since wealthy investors are the major beneficiaries of corporate tax cuts. Then, when Democrats take the reins, Republicans blame them for being spendthrifts. 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.”
Reich goes on to describe the sizable tax cuts that the wealthiest Americans have enjoyed under Republican presidential administrations in recent decades, citing them as a key factor in the federal deficit that House Republicans are now complaining about.
“A half century ago,” the economist recalls, “American’s wealthy helped finance the federal government mainly through their tax payments. Tax rates on the wealthy were high. Under Republican President Dwight Eisenhower, they were over 90 percent. Even after all tax deductions, the wealthy typically paid half of their incomes in taxes. Since then — courtesy of tax cuts under Ronald Reagan, George W. Bush and Donald Trump — the effective tax rate on wealthy Americans has plummeted.”
Reich adds, “Not only has their 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 are now paying a lower tax rate than middle-class Americans…. One of the biggest reasons the federal debt has exploded is that tax cuts on corporations and wealthier Americans have reduced government revenue.”
