What is the U.S. getting for its $1 trillion deficit?
One would think that such an enormous level of deficit spending would befit a nation with the world's best health care system — one that is available to everyone. It might be expected to foster a public school system that is second to none, with well-paid teachers helping to produce an informed and engaged citizenry and a workforce fully prepared for the 21st-century economy. You may expect to find state-of-the-art infrastructure, with efficient and well-maintained roads and public transit, and a high-speed rail system connecting all major cities. Such spending levels would also seem likely to result in services that would promote significant reductions in levels of poverty, addiction and violent crime. It might be used to energize an economy that takes full advantage of the investment and employment opportunities offered by continuing advances in technology and the use of clean energy and renewable sources.
Yet, despite our prolific spending, we fall far short of realizing the quality of life that our outlays suggest we should expect.
Our fiscal policies have brought considerable benefits to some, particularly those with the highest levels of wealth, but they have not advanced a broad vision of an expansive economy that lifts the general welfare. For example, rather than providing tax benefits where jobs are created, we implement non-targeted tax cuts in the mere hope that jobs will somehow magically follow. In the meantime, while some benefit handsomely from a lowered tax rate, we continue to accumulate massive debt by our insistence on reducing revenue without cuts in spending.
For nearly 40 years now, we have been hearing how tax cuts, which have consistently had the effect of providing the largest benefit to the highest income earners, will pay for themselves in the resulting robust economy — the so-called supply-side theory of economics. The problem is, it has never worked out that way.
When President Reagan took office in 1981, the highest individual tax rate was 70 percent, and the corporate tax rate stood at 46 percent. The top individual rate was then cut all the way down to 28 percent, and the corporate tax rate was reduced to 40 percent. While economists debate whether the subsequently improved economy was owing more to tax cuts or the reduction in interest rates — the rate the Federal Reserve charged to banks had reached a whopping 20 percent — the one thing that is clear from the Reagan tax cuts is that the lost revenue was not replaced.
In fact, those tax cuts helped lead to unprecedented increases in both the federal budget deficit and the national debt. While President Reagan did cut spending on domestic programs, he essentially wiped out that savings with increased defense spending. The failure to offset tax reductions with meaningful spending cuts, in the belief that those losses would be replaced by a booming economy, ballooned the budget deficit from $79 billion at the end of the Carter administration in to $153 billion at the end of Reagan’s, and the national debt jumped from $998 billion to $2.8 trillion during the same period. Additionally, the stock market crashed in 1987, and a subsequent recession added even more to the red ink. By the time George H. W. Bush left office in January 1993, the budget deficit had risen to $255 billion, and the national debt had grown to $4.4 trillion.
Further lessons can be gleaned from the experience that followed the George W. Bush tax cuts enacted in 2001. At that time, as a result of intervening tax increases, the top individual rate stood at 39.6 percent. By then, however, the budget deficit had been entirely eliminated during the Clinton administration, and budget surpluses were realized in each of the final four Clinton budgets. The national debt had continued to rise during the Clinton years, but not as dramatically, reaching $5.8 trillion. The Bush tax cuts reduced the top individual rate back to 35 percent and significantly reduced the capital gains rates. Once again there was no effort to reduce spending. The very first Bush II budget erased a $128 billion surplus and replaced it with $158 billion deficit. By the end of the Bush II administration, the costs of the wars in the Middle East, a prescription drug benefit in Medicare, and the bank bailout helped produce the first trillion-dollar deficit. The national debt skyrocketed to $11.9 trillion.
On top of that, the economy collapsed with the housing and mortgage crisis, resulting in the Great Recession and prompting enactment of the stimulus package during the Obama administration, which included an extension of the Bush tax cuts, a reduction in payroll taxes, and tax cuts extended to specific industries. Subsequent budgets cut the deficit to a low of $438 billion in fiscal year 2015, although it has since risen above $660 billion, but the national debt has catapulted to an astonishing $20 trillion.
When contemplating a budget deficit consistently exceeding $1 trillion, and a national debt approaching $30 trillion, given the many quality-of-life issues with which so many are confronted, one has to wonder just what we are getting for all of that money. And all signs suggest that we will have to continue to wonder.