karl-henrik pettersson


Filosofiska tankar om företagande och ekonomi

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Notes on a society in crisis (9): America’s fear of taxes

On April 1st 2012, my book,” Dagbok från USA”, came out in Sweden. It will also soon be published in English (as an e-book for Kindle and for other readers) with the title: “Diary from the United States – Notes on a society in crisis“. As an appetizer for English speaking readers, I will the coming weeks publish some excerpts from the book.

Why the U.S. national debt continues to grow

In 1980, the U.S. government debt was small by postwar standards. During more than three decades since the Second World War, there had been a falling trend from the level of 120% of GDP in 1947 to just over 30% in 1980, the hitherto lowest level since the war.

From the beginning of the 1980s the U.S. government debt (in percentage of GDP) started to increase, as shown in this graph (click for bigger picture, from Trading Economics). The upturn continued until the mid-1990s. By then, the national debt reached the level of 60-65% of GDP. With some variation from one year to another, it has remained at that level until the financial crash of 2008. What happened thereafter, after 2008, is a chapter to which I shall return.

That a nation’s government runs a deficit in extraordinary situations is one thing. This occurs regularly and in all countries because of economic downturns and recessions or specific crises like the Nordic banking crisis in the early 1990s. But it can also stem from – and this is worse – structural problems. A budget deficit can come from the expenditure side, the revenue side, or a combination of both. It may also be influenced by ideology and the values that guide politicians. I would argue that the latter applies in the case of the U.S.

Very simply, one can say that the U.S. has a federal budget deficit, and a high national debt, because the politicians in Washington, DC, and that goes for both Republicans and Democrats, dislike taxes and taxation. It’s obvious that systematic government budget deficits for a long time are equivalent to an unduly low tax levy. It could even be argued that permanent deficits are a manifestation of the imbalance between what citizens want in public goods, and what services politicians think are warranted to fund. It’s the very definition of an ideological position. Citizens demand more public services than politicians for ideological reasons think themselves capable of financing – and the result is systematic government budget deficits.

My interpretation of the U.S. government debt developments from 1980 until 2007 is as follows: The Republican presidents Ronald Reagan and George H. W. Bush, who were in office from 1981 to 1993, preferred to increase the national debt rather than increase the tax levy. They probably saw no problem with that since the national debt, as mentioned, had been much higher earlier, from 1950-1980. Changes from one year to another were also moderate. Yet the fact remains that the two presidents, or rather the Congress during their time in office, increased government spending without letting the U.S. citizens fully pay for the spending. It’s hard not to believe that it wasn’t a fear of, and aversion to, taxes that governed these decisions.

Democratic president Bill Clinton (1993-2001) apparently believed that the public debt was becoming excessive and gradually reduced the deficit. In fact, the federal budget showed a surplus for a few years around the turn of the century. During the Clinton years, there was a debate among economists, and also among politicians, about the need to reduce the U.S. national debt, so it’s reasonable to assume that the declining national debt during the Clinton administration had more to do with what was seen as economical and politically sound than with a different view of taxes. During George W. Bush’s first presidential term (2001-2005), the national debt climbed up again, not least due to a substantial tax cut, and it stayed on this higher level until the crisis broke out in 2008.

The U.S. national debt growth after 1980 and until the financial crash of 2008 reveals, I think, quite starkly that U.S. politicians are, simply put, afraid of taxes.


First published (in Swedish): October 1, 2011


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