1/1/2000: “Dawn” of the U.S. Second Century? I

Since Reagan, Republicans gave tax cuts to the rich. Clinton stabilized the debt. Obama spent trillions combating Bush 2’s financial crisis. Without drastic steps, will this century belong to China?

An exploding national debt is a risk to the United States’ power in the world, and justifications for enlarging the debt are flimsy. Summarizing its recent history:

• Reagan and Bush 1 tax cuts for the rich exploded the national debt.
• Productivity gains and Clinton stabilized the debt.
• Bush 2 re-exploded it with tax cuts, the Iraq war, and the financial crisis.
• Obama spent trillions to prevent a Great Depression.
• Trump followed with even bigger tax cuts for the rich.

Changes to national debt over the last four decades¹ are illustrated below, at the end of each four-year Presidential term.

A fourth grader can clearly see that the debt exploded more than ever under Trump, and in just a single term:

A wealth transfer from the middle class to the rich

From 1940 to 1975 the U.S. was preparing for war, fighting a war, or helping to repair from wars. In addition to taxes from a large, unionized middle class, there were very high marginal tax bracket rates even for the near rich. Substantial corporate tax rates were coupled with significant non-spouse estate taxes. The U.S. largely paid for its wars with fiscal responsibility.

For 12 years starting in 1981, Reagan and Bush 1 began an assault on these relatively high taxes on the rich and on corporations. The estate tax eventually became a fraction of what it used to be. The national debt exploded with each Presidential term, especially in percentage changes.

A wealth transfer from the middle class to the rich had begun.

More tax cuts, expensive wars, and a financial crisis

In the ’90s, with the collapse of the Soviet Union, U.S. expenses were reduced. Also there was a substantial increase in productivity due to the “Information Age” with computers in all businesses and eventually in most households.

Republicans prevented Clinton from spending on large programs such as expanded health insurance. As a result, the national debt stabilized, and there were yearly surpluses in Clinton’s second term.² Preliminary discussions began on what would happen to the U.S. economy if the debt eventually disappeared.

Prior to the Supreme Court’s decision in Bush v. Gore, Dick Cheney, Bush 2’s Vice‑President, was holding discussions with Republican congressional leaders of additional tax cuts, mostly for the rich. These were passed prior to 9/11. The major goal of the Afghan War was to track down Ben Laden. Military resources were “silently” diverted from this goal to the secret plan to invade Iraq. These tax cuts and the years of Iraqi occupation added much to the national debt.

Bush 2’s third impact on this debt was the U.S.-caused financial crisis beginning in March of 2008. Although there is much blame to pass around, the friendly Bush 2 appointees to the SEC and other watchdog agencies failed to see what was happening in the home mortgage market for years.

A long recovery, even bigger tax cuts, and a global pandemic

Intelligent action by Obama and his advisors prevented this financial crisis from becoming a Global Great Depression. However, the initial price tag was $831 billion added to the debt, according to a 2012 Congressional Budget Office report.³

The Great Recession was deep, and full recovery took at least seven years and was expensive. Significantly reduced tax revenues added to the debt.

Next Trump and the Republicans passed the largest tax cuts of all that were focused on the ultra-rich. Then came the COVID pandemic and its additions to the debt.

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[1]: U.S. Public Debt in trillions of dollars (not inflation-adjusted) on 9/30, end of Presidential term’s last fiscal year, source:
https://fiscaldata.treasury.gov

[2]: Congressional Budget Office Budget and Economic Outlook: 2016 to 2026, Appendix F, Historical Budget Data
https://www.cbo.gov/publication/51129

[3]: Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output, October 2011-December 2011
http://www.cbo.gov/sites/default/files/cbofiles/attachments/02-22-ARRA.pdf