Taxation, Not Borrowing, Is Needed

The bottom line in the U.S. Budget and National Debt debate is America desperately needs some cash, much less from borrowing, and much more from taxes. There is no realistic alternative.

The total public debt has risen at a galloping rate recently. It quadrupled during the Reagan and Bush I presidencies (1980-92). Under George W. Bush (2001-09), it increased from 5.7 to 10.7 trillion. 1 trillion was added in 2008, 1.9 in 2009, and 1.7 trillion in 2010. The aggregate national debt is now 14.46 trillion.

The tax cuts made by George W. Bush seriously damaged federal revenues. Supplemental off-budget appropriations for his wars in Iraq and Afghanistan added to the debt. Bush’s failure to fund Medicare Part D made the annual deficit and debt even worse. All of these shortfalls caused increases in the interest expense.

Instead of imposing taxes to pay for these expenditures, the government borrowed 4.6 trillion from the Social Security Trust Fund, using sums pegged for later years, and has obtained another 9.6 trillion from the public, by selling Notes and Bonds.

The debt is now at risk of growing even more, if guarantees for TARP, the Troubled Assets Relief Program, have to be honored. If the government fails to regain control of the situation, the U.S. Dollar may be devalued, and if that happens, it would cost the government even more in the form of higher interest payments.

The government historically financed operations through taxes, not borrowing. Since Ronald Reagan, however, deficit spending has been the norm. We have to get back to raising enough revenue to cover spending. We need to return to balanced budgets.

The trend line of declining tax receipts must be reversed. 45 years ago, 22% of federal revenue came from the corporate income tax, with only 2.7% from borrowing. After Reagan completed his time in office, 23 years ago, only 11% was from corporate taxes, and borrowing increased to 11%. Now, only 9% is from corporate taxes, as many large companies pay nothing at all, and borrowing is out of control. Corporate deductions, exclusions, credits, exemptions and loopholes are costing the U.S. billions every year and these abuses must be corrected.

Republicans are principally at fault, since they advocate spending for their pet projects, but consistently refuse to implement taxes to pay for them. Democrats, who remain silent, because they know they will be ruthlessly attacked if they suggest taxes as a means of balancing the budget, are also to blame. The country needs mature leadership. If we don’t get serious soon, real trouble lies ahead.

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