Federal Deficit

THE TAX ATTIC with Jerry Coon

June 30, 2011 // 0 Comments

Dealing with the federal deficit I listened to a very interesting presentation last week about the history of federal tax rates from the beginning of our income tax system, 1913, through 2011. The tax rates were a maximum of 6% in 1913. They stayed at that rate until the World War I had to be paid for, when they rose to a maximum of 73%. The rates went up and down incrementally until World War II had to be paid for, when they went all the way up to a maximum of 94%. After World War II, we fought the Korean War and the Vietnam War, so those maximum rates stayed high. The politicians in charge at the time had no trouble increasing the rates to pay for wars. They did not want a deficit to continue. They wanted it gone. The rates did go down to 70% under Presidents Nixon and Carter. Then along came Ronald Reagan. He cut the rates to a maximum of 28%. We have lived with his basic system since that day. It has been a wonderful system—complicated, but wonderful. The maximum rate has now climbed up to 35%, but that is nothing compared to 94%. Apparently, there was no tea party when the rates were increased to 94%. Or perhaps the politicians back then understood that the deficit had to be paid for and couldn’t just increase infinitely without repercussions. Since the beginning of our country, the federal government from time to time has run deficits and accumulated debt, but that debt has been paid off as soon as practically possible. Now our federal deficit is over 14 trillion dollars. It won’t be paid off any time soon, perhaps never. How has it gotten so large? There are a number of reasons. First, we fought the Persian War and numerous small wars, such as the one in Serbia. Second, we continue to fight the wars in Iraq and Afghanistan and numerous small wars, such as the one in Libya. Third, various federal stimulus programs have occurred in the last few years. Fourth, upwards of 20% of our total revenue is now spent on Social Security benefits. The politicians of generations prior to 1940 did not have to deal with […]