This question is one of the most relevant questions that could be posed to US citizens and their elected representatives, which, if answered correctly, could possibly restore the fiscal health and happiness of the US.
The US total federal debt remained about the same, around $2 trillion, from 1945 to Ronald Reagan’s time in 1980, when it significantly increased, from about $2 trillion to about $5.5 trillion over eight years. The debt increased more slowly under Bush I, about another trillion in four years; and Clinton-Gore balanced the budget and reduced the debt in 1999, the only administration to do so since 1980. The debt then resumed its upward climb at an accelerating pace under Bush II, about $5 trillion in eight years, and under Obama, about $5.5 trillion in four years. The total debt is now about $16.4 trillion and the yearly deficit is about $1 trillion.
According to Keynesian doctrine the way to get out economic quagmires such as we are in is to use both monetary and fiscal policy to increase aggregate demand, necessitating lower interest rates, increased government spending, decreased taxes, and money borrowing and printing. Well, interest rates in the US for some time have been about as low as they can go, government spending has been elevated for decades, starting with Reagan in 1981, tax rates were lowered dramatically for large corporations and the elite rich by Reagan after 1980 and by Bush II after 2000, trillions of dollars have been borrowed and trillions of dollars have been printed by the Federal Reserve. And here we are today still not stimulated back to full employment.
Although Keynes did not say this to my knowledge, it seems to me common sense would tell you raising the tax rates of large corporations and the elite rich back to 1980 levels in these times under these conditions will not significantly decrease aggregate demand in the domestic economy, thereby restraining growth in jobs and GDP, since the elite rich have so much money they can buy all the consumer goods they need and might want if their taxes are raised by what would be a minuscule percentage of their disposable funds; and raising the tax rates of large corporations, and removing their loopholes, will not cause them to invest less for new plant and equipment in the US since aggregate demand is already too low to produce sales for new products to justify significant new investment in the US.
Most likely our bought and paid for hopeless, narcissistic Congress will not raise the tax rates of large corporations and the elite rich back to 1980 levels but will continue to borrow money, without significantly cutting defense or welfare spending, allowing the debt to continue its rapid climb, which might create growth and increase employment, in the short run, especially if the Federal Reserve, or better yet the US Treasury, were to print and spend money to construct high speed rail lines and restore decrepit highways and bridges and hire back teachers laid off by states, instead of starting wars like Bush II did, and instead of handing out trillions of dollars of borrowed and printed money to busted bankers, credit default swap gamblers and manufacturers as Obama felt compelled to do; but common sense would tell you more jobs in the US would be created and less debt would accumulate if real money paid in taxes by the elite rich and large corporations was added to the borrowed and printed money requisite for creating aggregate demand sufficient to restore full employment.
Admittedly, it’s debatable whether raising the tax rates of large corporations and the elite rich back to 1980 levels is fair. I argue it is fair since large corporations and the elite rich would be giving back the tax savings they were unfairly granted by Reagan after 1980 and Bush II after 2000. On the other hand, most Republicans, and some Democrats, would argue our ancestors had unfairly set the tax rates of large corporations and the elite rich too high before 1980, and Ronald Reagan, and Bush II, in their wisdom, fairly lowered them to where they should have been all along, correcting the mistakes of our ancestors.
Most California voters would agree with me. On January 15, 2013, on the 6 o’clock PBS Evening News, Governor Jerry Brown of California told the world they had solved California’s budget problem, after Californians passed with referendum votes new laws raising the state taxes of the elite rich and eliminating tax loopholes for corporations. Brown said 54 percent of Californians voted for this.
If only we could have a federal referendum for all US voters to vote for national equivalents of California’s Propositions 30 and 39.
More than fifty percent of US voters would probably agree it would be fair to raise the tax rates of large corporations and the elite rich back to 1980 levels; and happy days would again be here.
Richard John Stapleton is an emeritus professor of business policy, ethics and entrepreneurship who writes on business and politics at www.effectivelearning.net. He is the author of “Business Voyages and Recommendations for Waking Up From The American Nightmare.”