Under the 8 years of the Obama Administration, there was an unprecedented increase in the national debt in the United States. Conservative commentator Sean Hannity likes to remind his listeners over and over again that Barack accumulated more debt over his two terms than all US Presidents combined, which is true. However, since the beginning of the 2016 election cycle, the second biggest talking point for Republican and RINO candidates for President and Congress has been lowering taxes for everyone. Given the fact that we are currently just shy of $20 trillion dollars in debt, this seems to not make any sense. It seems almost impossible to get rid of our debt if we reduce our taxes, which are our government's main source of income. However, there are simple, as well as more complex factors that play a part in how our promised tax reform can put us back into the place that we need to be.
Let's start with what the National Debt actually is. The term "National Debt" is a scary word that gets thrown around political discussions both on and off of election years, and is often associated with the terms "Surplus" and "Deficit". Everyone in the US has heard the words "National Debt", but most laymen couldn't really tell you what it actually is, outside of saying "it means that China owns us." Surprisingly, most highly politically active people don't really even know what the debt is. I'll admit, I had to go do some research to find out for myself.
The National Debt is the total amount of debts owed out in exchange for working capital that the government uses as a supplement to taxes for operational costs. The Debt is sold as Treasury Bonds on an open marketplace that anyone can buy that lose value for a few years, before beginning to gain value, reaching their maximum value at 30 years. It also includes unpaid trade deficits to other countries that tax us to sell goods within their borders. This is a confusing concept to many people, as most points in conversation, people make it seem like Bill Clinton just flew to China one day and said "Hey, man. Can I borrow 50 bucks?"
Anyone in the world is free to buy a bond at any time. In fact, many investors and private citizens use them in wealth portfolios and savings accounts. I had an Aunt and Uncle growing up that bought a $50 bond in my name, along with all their other nieces and nephews, every year, for the first 18 years of our lives. I understand that in the peak of the 80s and 90s economies, that was a pretty common practice all across America. All of those Bonds are counted in the National Debt. While people are free and willing to buy bonds at any time, at times when the total amount of bonds and taxes just isn't enough; such as in war time, or when there is more going out in entitlements than what is coming in; the government starts to advertise and push the purchase of bonds, first at home, and then abroad. A semi-contemporary example of this was the scene in Captain America: The First Avenger where Captain Rogers and the chorus line was on a national tour proclaiming that every war bond you buy is a bullet in your best guy's gun.
One of the magic of Bonds is that it's on the Bond owner to cash it in. The government doesn't have to come out and pay it off when it reaches maturity. This is important because many people claim that all China has to do is demand payment on the debt and they would destroy us. That may be true, and it may not. It would all depend on the age of the bonds. I can say for certain that if anyone cashed in a Bond (or millions of them) from the Obama or Bush administrations, he would lose money. Most of the simplest bonds out there stay below face value for the majority of their 30 year life spans. And as far as China goes, it's interesting to note that according to the US National Debt Clock, only $6.14 Trillion of our debt is currently held by other countries at the time I'm typing this. While that's not good, I personally feel a little better knowing that less than a third of our total debt is foreign, in spite of what I've been told for the last 20 years.
The other major pillar to the Government's economy, and a much larger share, is taxes. People pay a portion of their income to the government in exchange for a series of services from the government. The major difference between this and bonds is that bonds are completely voluntary, and taxes are required by law. There are those who would go as far to say that all taxation is theft based on it's compelled nature. Most people do understand the concept that the federal government requires operating capital to run from day to day, and that the salaries of congressmen and the president do need to be paid. Along with this, we have a military that does need to be funded, and a myriad of other services that the government provides on a federal level. The main source of dissidence comes with the amount of taxes that get paid by the people, and what it is getting spent on.
An important point to note is that a lot of people blame welfare for the high level of federal taxes. While this is not directly true, there are two factors to welfare that do bring it into the federal budget. State governments determine eligibility and pay welfare. However, an ailing state that can't keep up with it's budget requirement can get a loan or a grant from Washington DC to help better serve it's people. The other point of this is that taxes are a numbers game. The bottom 51% of households in the US owe no Federal income tax, and the rest of us have to pick up the slack, but I will touch on that later.
The big argument on taxes from the left is that we need to be taxing the top 1% of earners in this country nearly every penny they make. We did so in the 50s, and had a period of 4% growth of the US economy as we did. The problem with that is that the global economy is not what it was immediately after World War II. For the United States in 1950, the entire world was a seller's market. Prior to the World Wars, many European countries, along with Japan, exported and imported equally across the world. Years of war devastated these countries and their manufacturing capabilities. But the wars touched very little US soil, and because of this, the day to day needs and the rebuilding materials could be easily and quickly purchased from United States manufacturers for whatever price they want to charge. At that point, even getting taxed at 99% would become profitable for business leaders, and would put a lot of people to work. As the world rebuilt, prices had to come down, and business leaders couldn't make a profit, or pay their workers on such a high tax rate. In today's world, almost every country in the world exports at least one item that it's known for, and many other items that it can either undercut price on, or are of a higher quality, over other countries, and our tax rates need to reflect that.
With all this in mind, one can conclude that lowering taxes is essential for economic growth, and an across the board tax cut is the best way to do it. Sure, in the beginning, there will be a deficit on the federal budget. But as I mentioned before, it's a numbers game. With regulations falling off of employment like snow from a March rooftop, any money that the business leaders of America is worth more invested in a good or service, than it is parked offshore somewhere. If I have 100 bucks, I can either put it in a bank at their low interest rates, or I can hire you to perform a service in my name for ten bucks an hour, and charge someone 30 bucks an hour to do it. In 10 hours I've doubled my money, and you have 100 bucks in your pocket. A lot of millennials don't understand this, but that's really how business leaders think. It's more profitable to provide a service than to park your money. Therefore, the more money that people who lead business are allowed to keep, the more they are likely to hire. On the other side of the board, bringing the tax rate down for the people in the middle to the point that the republicans are suggesting puts a bunch of money into people's pockets that they are going to spend. At $40k a year, 15% in taxes is 100 bucks a week extra in a single person's pocket. With moderate credit and a good driving record, that's a car payment on a modest, brand new mid-size car, plus full coverage, and enough leftover for a trip to the sushi bar once a month. With all that extra spending, even small business leaders will have no choice but to keep hiring. Once everyone who is willing to be in the workforce is in the workforce, wages are going to start driving up across the board. Even half of the 13 million actual unemployed people paying income taxes will more than make up for the 20% drop in tax rate for the lower middle class, and everyone along the way.
If our current Congress can pass the tax reform that they plan, I have no doubts that we can put a surplus back onto our economy. The interesting turn of events after that started happening would be a vote to see what we do with the surplus money. I'm sure there would be a vote to see whether we put it into a coffer to be ready when the Bonds that our debt is tied into start to mature, or to return it to the taxpayers. There are strong arguments to both, but first we need to get there.
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