Written by G. Ross Stephens   

Many politicians seem entirely bereft of knowledge concerning the history of government finances – “Those who don’t know history are destined to repeat it.” (Edmund Burke, 1729-1797)

Post-World War II, 1946 to (fiscal year) FY1981, the national debt declined from 127.9 to 32.5 percent of gross domestic product (GDP, measure of the total economy) – from the highest level ever, to the lowest since before the Great Depression. Tax collection increased slightly faster than spending. We were outgrowing our national debt. The economy grew and declined at almost the same rate as revenue collected.

In 1950-52 the top one percent of taxpayers, on average, paid 5.2 times the percentage paid by the lowest 50 percent; now it's less than the low half of tax returns. Corporations contributed as much as one-third of federal revenue; now it’s one-eleventh. Income taxes brought-in four-fifths of all federal revenue. Higher incomes paid higher percentages. With top personal tax brackets in the 70 to 90 percent range; average top one percent of income earners paid 31 percent or less of their total income. For 2007, it’s 16.5 percent; some pay nothing. Large highly profitable corporations and the wealthy pay a lower percentage than low- and middle-income households.

After President Carter’s last budget, given the application of ‘trickle-down’ economics under Ronald Reagan and George W. Bush, everything changed. Excepting a hiatus during the Clinton administration, debt mushroomed, increasing 6.0 percent annually for three decades since FY1981; up 3.8 percent as a proportion of GDP. With spending maintained at post-war levels, revenue increases dropped by three-fifths, resulting from tax cuts for economic elites with remaining taxes downloaded on low- and middle-income taxpayers. For FY2013, the national debt will reach about 111.5 percent of GDP.

Total public debt, federal + state + local, was 135 percent of GDP in 1946; for FY2013, it approaches 134 percent of GDP, give or take 1 to 3 percent – virtually the same as 1946. Of 32 developed OECD countries we rank 28th in tax burden - only Ireland, Korea, Mexico, and Turkey are lower.

Trends for sixty-six years since 1946 indicate revenue collection is as important to economic growth as expenditures enabling government to provide necessary infrastructure for economic stability. As revenues rise or decline, the economy follows suit. Excepting prisons, domestic infrastructure has deteriorated. Fiscal policy change takes years to work through the federal system. Government is an important sector of the economy, probably the most important sector – contributing one- fourth more to the economy than the economy contributes to government.

History destroys the ‘trickle-down’ approach. Government is facing tax increases and budget cuts over the next month. Heed history: severely reduce national security expenditures; importantly increase science, education, and domestic infrastructure spending; rescind all tax cuts of 2001-2003, raise capital gains tax to 50 percent*, levy $10 a barrel on imported oil – to help the economy and cope with the national debt.
__________
*That's 50% of what they would pay at their rate of personal income.