One month ago, the government almost shut down because our two political parties couldn’t agree on how to approach a temporary budget. Democrats wanted deep, painful spending cuts. Republicans wanted deeper, more painful spending cuts.

As both parties turn their attention to the 2012 budget, it appears that their focus on cuts will continue, with the Republican budget including the end of Medicare as we know it.

Some want the cuts for reasons of principle, while others say that they would normally oppose them but the sacrifice is necessary right now. All agree that we have to cut.

The reason for this unusual bipartisan agreement is that both parties have noticed that, after 30 years of growth interrupted only by the brief interlude of the Clinton administration, our debt is rather large.

When it comes to debt, the number itself doesn’t matter. This is easy to demonstrate. If my total debt were equal to $1 million, I would be financially ruined. If the United States’ total debt were equal to $1 million, it would be in its best shape in living memory, if not ever. The size of the debt, $1 million, is the same in both cases, but what it means is completely different because the number itself doesn’t matter.

What matters is how the number relates to the economy in question. For the national debt, what matters is what the debt is as a percentage of gross domestic product. The reason the debt is a problem is not because it is $14 trillion, but because that happens to be about 100 percent of GDP. That’s bad, but it’s not unheard of.



World War II left the United States much deeper in debt than we are today. President Truman inherited a debt of 117.5 percent of GDP. He passed on a debt of 71.4 percent, much lower than today’s debt, to President Eisenhower.

Eisenhower passed on a debt of 55.2 percent, and by the time President Johnson left office, it was 38.6 percent. If we were to reduce the debt by that much, we would either have the lowest debt since Ronald Reagan came to power (if the reduction were relative) or the lowest debt in the history of post-World War II America (if the reduction were absolute.)

This should be comforting. We have a high debt, yes, but we have passed this way before, and it did not end us last time. Last time we dealt with it. Last time we beat it. And last time we did it without making cuts: just the opposite, in fact. We created the interstate highway system, the largest public works project in human history. We expanded Social Security. We created Medicare. We created Medicaid. We sent a man to the moon (more than once). And through it all, the debt went down.

An inescapable difference between then and now is taxes. To pay for World War II, the top marginal tax rate had been raised to 94 percent. When the war ended it dropped, but between when Truman took office and when Johnson left office, the top marginal tax rate averaged slightly less than 90 percent. That paid for the interstate system, that paid for Medicare and Medicaid, that paid for Social Security, and that lowered our debt.

Today, things are different. Our current crisis wasn’t caused by a war: The debt started on its current course 30 years ago in a time of peace. Reagan lowered the top marginal tax rate, and in his first term he increased the debt more than 50 times faster than it had risen under President Ford, the only other postwar president to increase the debt to that point.


After Reagan’s eight years and the first President Bush’s four, the debt had more than doubled. President Clinton raised the top marginal tax rate and managed to reduce the debt by nearly 10 percent of GDP, but that was undone by the second President Bush. The top marginal tax rate hasn’t gone up since then, which is why the debt is approaching 100 percent of GDP.

Instead of the 90 percent top marginal tax rate of the “greatest generation,” the rich of today pay 35 percent on the last dollar they earn. That doesn’t pay for Medicare, which is why Republicans in Washington are talking about changing it into something that is unrecognizable.


In a certain sense, the politicians in both parties are right. If we keep up like this, we can’t afford things like Medicare. Medicare, Social Security and the interstate highway system are big government projects, and we can’t pay a small government price for them without ending up over our heads in debt. If we aren’t willing to have higher taxes, we have to get rid of them.

Where politicians are wrong is the choice they’ve made. We have been here before. Last time we decided to pay for a government worth having. Last time we decided that people should have to pay more on dollar 3,750,001 (inflation adjusted) than they did on dollar 250,001. The world did not end. The country did not collapse. Last time it worked.

What we’ve been doing isn’t sustainable, but rather than try to cut the government to meet the size of our current backward tax code, we should recognize that a government worth having requires us to actually pay for it and adjust our taxes accordingly.

– Special to the Press Herald


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