Balancing taxing and spending to save the U.S. economy

By Joshua Hayward, Special to the BDN
Posted May 04, 2011, at 9:59 a.m.

My fellow Mainers, there was a time where our national debt was 120 percent of our GDP (total economic output), just after WWII and, yes, that is a higher percentage than we face today at just over 100 percent of GDP.

We could then assume that this situation we are in today is OK as we’ve been here before and it will get better as the GDP grows and our economy recovers.

I must point out as I answer this question, that as a fiscal conservative I am a big believer in small government. In fact as a CATO believer you might refer to me as a Libertarian more than anything.  What I do know from my experience, education and studies of the economy is that big spending combined with low marginal taxes is a path to financial collapse!

That means both the left and right are wrong and the combination of both will not allow our debt to shrink as a percentage of our GDP.

So, let’s look at it a little closer and see what we speak of with regard to big spending and taxes.

Here is the reality with the politics left at the door.

Tax Rates

Higher marginal tax rates work! Just look at this link and associate it to growth periods in our economy as well as the percentage of our national debt to GDP. In making this statement I have just left other conservatives stunned, but it is simple fact. This means I am indicating that the new Ryan budget is a disaster – and it is.

We cannot reduce top marginal taxes to 25 percent. It is unnecessary and it is financial suicide. It is already a fact that top earners, business and personal, pay lower than the stated marginal tax rates as a result of the loopholes and tax strategies available to them. To reduce top marginal tax rates even lower than current levels will only further the imbalance of wealth and destabilize our government more quickly.

Incidentally, take another look at the link, paying attention to 1929/30 and 1990 – and 2006 (while not on the chart, you can see the rate in 2003). Those periods represent the lowest rates and all immediately precede our more serious recessions/depressions.

Spending

Let’s accept that most Americans do not want to destroy the Medicare and Social Security systems. I agree that simply letting them fail is to give up on a commitment made to generations of Americans.  Can we tweak future benefits for younger Americans in order to address our new age demographics? Absolutely, we can and most feel we should.

Additionally most Americans agree that TOO much is spent on defense here in the U.S. In fact, since 2001 defense spending has increased 81 percent.  This year we will spend over $900 billion on defense! Meanwhile, total income taxes collected is only $1,200 billion.  Does that make sense? NO.

Then again this is simple – reduce defense spending drastically.  As well, get out of Iraq and Afghanistan, conflicts which run up billions in additional spending annually. Again, conservatives and Republicans stand abandoned. I say to use 9/11 as a reason to bankrupt our country is a crime.

Why am I coming out so directly on these issues? Because it is basic math and simply the correct path to take! Our accumulated knowledge of finance should be enough to make good decisions, though it is not. And history tells us what we need to know.

Just look at 1992 to 2000 (whoops – those were Clinton years, successful years.) And in 1992 Newt Gingrich said raising taxes will stifle an economic recovery. If you recall, we had just been in a recession as we have been recently and then the ‘90s boomed with higher taxes. President Clinton raised taxes, balanced the budget and kept the national debt well under control.

I say this as a fiscal conservative and do so by simply leaving politics at the door and looking at financial facts.

My hope is that all of us can do more of just that, leaving politics at the door and taking sound financial steps to solvency.

There are many more factors that play into our budget challenges, but certainly these are two key items which can be simply managed and deployed.

I hope this stirs you to action and to involvement in the ever vital decisions we face at our state and federal levels.

Joshua Hayward has worked as a financial strategist for 19 years and can be heard Monday mornings at 7 on the George Hale & Ric Tyler Show, 103.9 FM Bangor, 101.3 FM, Augusta. He can be reached at joshua@baldaccigrp.com.

http://bangordailynews.com/2011/05/04/business/biz-beat/balancing-taxing-and-spending-to-save-the-u-s-economy/ printed on August 20, 2014