Tag: economics

Our National Debt—Is There a Way to Solve It That Makes Both Republicans and Democrats Happy?

Congress has now passed the One Big Beautiful Bill based on President Trump’s plan to reduce the budget. As the media has reported, the support for this legislation is split in both the Senate and House.  Why? 

Our national debt is presently $37 trillion.  To pay interest in 2023, the budget had to set aside $726 billion, approximately 14% of the total federal budget.  To cover the growing debt created by deficit spending, the Treasury Department issues securities (Treasury Bonds) that will be paid at a future date. For most of us, debt is something we can live with as long as we continue to bring in enough income to cover our annual expenses, loan payments and interest.  To meet these demands, we can raise more money by working additional hours or cutting our spending. The government has the same dilemma.  The federal budget can either cut spending or increase revenue.  The source of additional revenue is taxes.  Thus, the problem!

Cutting the budget may seem relatively easy.  However, as is evident from the debates in both houses of Congress, cutting Medicaid or Medicare Advantage would have a significant impact on the working poor.  Other discretionary cuts to defense and other programs are not deemed desirable by either one side of the political spectrum or the other.

President Trump is determined to make his tax cuts permanent, so increasing taxes under his watch is a nonstarter.  Bernie Sanders advocates an increase in taxes on the wealthy (high income individuals and corporations, those making over $250,000 from 35%).

Can the debt be paid back?  The answer is yes.  However, the task is challenging.  The biggest challenge is the lack of political will.  Next is the mixed opinions of “we the people.”  However, it may be possible to find solutions that will satisfy the majority of Americans.  The Congressional Budget Office (CBO) suggests 76 options to balance the budget and pay down the national deficit.  What are these options?  These options span both the spending and revenue sides of the federal budget and are designed to merely inform lawmakers without making specific recommendations.

CategoryExample OptionEstimated 10-Year Savings
MedicaidCap federal spending$501B–$871B
MedicareRaise Part B premiums$448B
Social SecurityFlat benefit structure$593B
DefenseCut DoD budget$995B
New Tax5% VAT (Value Added Tax)$3T
Tax ReformEliminate itemized deductions$2.5T

These options are not endorsements, but rather a menu of possibilities for lawmakers to consider.  Savings from changes in entitlements would save less than $2 trillion.  Saving from cuts in defense spending and changes in tax laws (selectively raising some income taxes) would save almost $6.5 trillion.  The best path forward would appear to be changing our tax structure to reflect historical trends. 

In the past 50 years, the United States has had a balanced federal budget—or more precisely, a budget surplus—only four times, and all of them occurred consecutively during the late 1990s and early 2000s:  All four years were under President Clinton: in 1998 $69.3 billion; in 1999 $125.6 billion; in 2000 $236 billion; in 2001 $128.2 billion.  President Clinton’s administration showed a rare period of fiscal discipline, driven by a strong economic boom in the technology industry, spending restraint, and higher taxes from capital gains and Income Taxes. During President Clinton’s administration, the Income Tax was increased from 31% to 39.6% for those earning over $250,000.  Capital Gains Tax was reduced from 28% to 20% on assets held for over one year, and the Corporate Tax rate was increased to 35%. 

Taxes were even higher during the Eisenhower presidency.  The top marginal income tax rate for individuals was as high as 91% for income above $200,000. This means that any income earned above this threshold was taxed at 91%.  The corporate tax rate was as high as 52%, depending on the level of profits.  For example, profits above $25,000 were taxed at 52%.   Despite facing two significant recessions, Eisenhower managed to forge a consensus on defense spending and maintain a strong economy (Penner, Rudolph, June 2024).    

While tax rates were lowered during the Reagan administration with the passage of the 1981 Economic Recovery Tax Act and the Tax Reform Act of 1986, there is much debate over what became known as Reaganomics or “trickle down” economics.  Data shows that tax cuts and other policies to fatten corporate profits don’t always result in job creation, investment, productivity, and economic growth. There is also no concrete evidence supporting the opinion that tax cuts pay for themselves (Amadeo, Kimberly, “5 Reasons Why Supply-Side Economics Does Not Work,” Investopdedia).

 Since 2001, the U.S. has run a budget deficit every year, including during periods of economic expansion. Both Republicans and Democrats were contributors to the deficit spending.  The primary reasons for the deficits include tax cuts in 2002 and 2003 under President Bush and in 2017 under President Trump.  Currently, Income Tax for those making over $250,000 a year is 35%, down almost 5% from the Clinton rate.  Those making less than $11,600 a year pay a 10% tax.  Capital Gains Taxes have remained steady.  Corporate Taxes were reduced from 35% to 21%.  At the same time, defense and entitlement spending has increased. In the decade following Sept. 11, 2001, military spending increased by 50% when adjusted for inflation.  Following these two major contributors was the COVID epidemic and government spending to bolster the economy.

America can have a balanced budget, and even a surplus, which could be used to pay down our federal deficit more quickly.  With the passage of the current budget bill, which is NOT balanced, the federal deficit will increase.  The cuts to entitlement programs are not enough to offset tax cuts and increased spending on the military and immigration enforcement programs.  Our nation’s financial problems can be solved.  Cuts to some programs are needed.  However, the real answer rests in supporting tax rates that can allow for a balanced budget.  The solutions will not make either party totally happy.  Compromise must return to the bargaining table!.  Program cuts, along with increased taxes, can reduce the federal deficit!

Is History Repeating Itself?

The Gilded Age and Robber Barons

Historical Context

The Gilded Age (roughly 1870-1900) was infamous for its blatant corruption. Political machines like Tammany Hall in New York City thrived on bribery, patronage, and voter manipulation. This age was notorious for political corruption, with officials often influenced by wealthy business interests. Business tycoons wielded immense influence over politicians, often securing favorable legislation in exchange for financial support. The term “robber barons” emerged to describe these industrialists who exploited both workers and the political system. Thus, Americans saw extreme wealth concentration among industrial magnates like Rockefeller and Carnegie. Rockefeller and Carnegie amassed fortunes largely unchecked by government regulation.  These wealthy businessmen focused on domestic industrialization.  The wealth gap between industrial tycoons and ordinary workers was staggering. The era was marked by rapid technological advancement that reshaped society.  Railroads connected the country, electricity revolutionized production, and factories mechanized manufacturing.

Reform efforts during this time included the Pendleton Civil Service Act of 1883, which aimed to curb patronage by requiring government jobs to be awarded based on merit rather than political connections. However, progress was slow, and corruption remained deeply entrenched.  Populist movements were frequent, and debates over government intervention in the economy were just beginning.  It wasn’t until President T. Roosevelt became president, that real reform began.

Does any of this sound familiar?  The Gilded Ageand today share striking similarities, particularly in terms of economic inequality, technological innovation, and political dynamics.

Similarities?

  • Wealth Disparity: The Rockefellers, Morgans, Goulds, Vanderbilts, and Carnegies controlled over 50% of the nation’s real and personal property during the late 1900s.  Today, billionaires like Elon Musk, Warren Buffet, Mark Zuckerberg, and Jeff Bezos hold immense economic power. Wealth inequality in the U.S. has been steadily increasing over the past several decades. The top 1% of Americans now control 31% of the nation’s wealth.  In 1963, the wealthiest families had 36 times the wealth of middle-class families. By 2022, that gap had widened to 71 times.  In 1983, white families had about $320,000 more wealth than Black and Hispanic families. By 2022, that gap had grown to over $1 million.
  • Technological Advancements: The expansion of new technologies like railroads, electricity, and assembly line manufacturing dominated the Gilded Age.  Today the U.S. leads in artificial intelligence, software development, and semiconductor production, with major investments in AI research and chip manufacturing. Solar and wind energy are expanding rapidly, driven by government incentives and growing demand for sustainable solutions.  The U.S. is experiencing a resurgence in manufacturing, particularly in automotive (electric vehicles) and semiconductors.
  • Political Turmoil: The 1800s experienced political corruption with the Teapot Dome, Star Route postal bribery scandal, Credit Mobilier contractor bribes re Union Pacific Railroad and Panama Canal.  In the 21st Century we have witnessed the Enron scandal, Bernie Madoff, FTX, and Variety Blues.  Both major political parties in the U.S. have accused each other of various forms of wrongdoing, often tied to scandals, policy decisions, and ethical concerns. Democrats have accused Republicans of voter suppression tactics, while Republicans have alleged election fraud and biased election oversight. Both parties have pointed fingers at each other over financial misconduct, misuse of campaign funds, and conflicts of interest. Democrats have accused Republicans of being influenced by foreign governments, particularly Russia, while Republicans have claimed that Democrats have ties to foreign entities that compromise our national security.
  • Social Movements: The Gilded Age was filled with social movements like abolition, women’s rights, temperance, Utopian societies, and reform of education and prisons, and the birth of the union movement. Today, workers have unions, labor laws, and social safety nets. Social reform continues with Black Lives Matter, MeToo, Arab Spring, LGBTQ+.
  • Populist Movements: The Populist Movement was driven by farmers, laborers, and reformers who sought economic and political change. The most notable populist movement was the People’s Party, founded in 1892. It emerged from the Farmers’ Alliances, which had been organizing to address issues like falling crop prices, unfair railroad practices, and debt burdens. Today we see the Tea Party movement and MAGA.   The MAGA Movement focuses on prioritizing American interests in trade, immigration, and foreign policy.  It advocates for stricter border control and reduced immigration, supports tariffs and policies that favor American manufacturing, emphasizes strong policing and criminal justice policies, and appeals to working-class voters who feel left behind by globalization. The Tea Party Movement 0pposes excessive government intervention in the economy, advocates for lower taxes and reduced government spending, supports deregulation and minimal government interference in business, was a major force in resisting the Affordable Care Act, and encourages decentralized political engagement.
  • Regulation: During the Gilded Age there was NO regulation.  Thanks to anti-trust laws passed in the early 1900s, monopolies were regulated for the first time.  Today, modern antitrust laws are supposed to prevent monopolies from dominating industries as they did in the late 19th century.  However, many believe that antitrust enforcement has weakened over the decades, leading to increased market concentration and wealth inequality.  Still, the Department of Justice recently won a landmark case against Google, ruling that the company had monopolized digital advertising markets. This suggests that regulators are still capable of acting against monopolistic behavior. However, critics argue that enforcement often lags behind rapid changes in the business landscape, making it difficult to address emerging monopolies effectively.
  • Globalization: The Gilded Age was about American business.  While there was global trade America was focused on its own growth. Today’s economy is deeply interconnected on a global scale.  America has lost much of its labor-intensive production to cheaper labor markets overseas. 
  • Political Corruption and Reform: Political machines like Tammany Hall once controlled local government, with bribery and patronage as standard practice. National corruption was common with big money buying Congressional votes.  Today, money still plays a powerful role in politics through lobbying and campaign financing. Lobbying and campaign financing allows corporations and wealthy individuals to exert significant influence over policy decisions. Super PACs (political action committees) can raise unlimited funds, often leading to concerns about the disproportionate power of money in politics.

Conclusions

My own opinion is that we are again under siege by large corporate/monied interests.  The common worker is left out of the solutions.  Monied interests are making gains.  MAGA, through Donald Trump, promised that in the first days in office the average American would see lower prices, better wages, a return to better days, and Americanization of the United States.  After 100 plus days in office, prices are not lower, wages are not better, and the numbers of unemployed have not changed.  While the Trump administration claims that it has almost eliminated illegal border crossings, the way Americanization is being achieved is questionable.  Courts have ruled against his executive powers used to deport illegal immigrants, or even citizens, who speak out against Israel.  Public opinion remains divided on whether Trump is successful, with a minority praising his decisive actions while a majority express concern about economic instability and legal challenges to his policies.  Recent polls show that Trump’s approval rating has declined as concerns over the economy and foreign policy are growing. His approval rating hovers around 45%, with some polls showing it dipping as low as 39%.  Nearly 60% believe Trump’s policies are making the economy worse.  Fifty-nine percentdisapprove of his administration’s tariff increases. His handling of immigration has 45% approval, but disapproval has increased. And lastly, 51%think he is relying too much on executive orders.  I believe we need a 21st Century Teddy Roosevelt!

I leave the comparison and conclusions to the reader.