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Memories of the 28th Century

Debt Reduction

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Since 2017 the National Debt has grown from 20 trillion to about 27 trillion, and there are proposals for additional stimulus that would add between 3 and 4 Trillion to the debt. Most of the increase in debt under Trump is due to the huge tax cuts that were given to the extremely wealthy and to corporations. I don't even think about “class warfare”, but Trump tried to get more support from his friends, without considering the consequences.

It has long been easy for businesses to limit their taxes by reinvesting the business. Investing in plant and personnel used to improve economic conditions for the rest of the economy, but over the last few decades a large part of manufacturing has been moved overseas, where the personnel are not Americans, and the plant and machinery often are from local or regional suppliers. The only boost to the U.S. economy is in corporate profits and in the retailing.

I think the U.S. economy would be in better shape, if everyone were treated the same, rather than there being different rates for different kinds of income and different taxpayers. I also think that individuals should be responsible for themselves, so we should avoid “nanny government” that provides extensive services for people, but there are people who are incapable of caring for themselves, and provisions must be made for them, but even chronic alcoholics are capable of working and being productive citizens. I mention that, because until a few decade ago, there were manufacturing jobs that produced most of what was used in this country, including clothing, shoes, household goods, manufacturing machinery, and everything else, and the country is still capable of doing that.

While we might tweak corporate income taxes, so that overseas production would not be as advantageous, a more direct and generally helpful way for moving jobs and production back to the U.S. Would be to make the dollar stronger. The easiest way to strengthen the dollar is to raise interest rates, and decreasing debt would be very effective at doing that. We could start by putting the corporate tax rate back up to 40%, or so, And then changing how investment are written off would be another step.

On the other hand, a stronger dollar would make imports cheaper, but interest rates would be higher, so investments would give higher returns. The more I think about this, the complicated it becomes, but there are a few principles that are necessary: minimal adjustments to income, tax advantage for producing goods in the U.S., revenues that will lower debt. The national debt first exceeded one trillion the year when Reagan reduced corporate income taxes, but the debt was already over twenty trillion when Trump cut taxes. The U.S. Is not as bad as Italy was when they adjusted everything to inflation, and thereby encouraged more inflation, to the point where the Lire was almost worthless, but that kind of thinking has been common; it's fine, as long as everything goes up in proportion. Unfortunately, things have not kept pace. Jobs that paid a living wage a few decades ago are barely worth taking today. A few decades ago, general workers in factories and retail stores could buy houses and afford to raise families with the wives staying home to care for the children, but they can't anymore. And the cost of housing has gone through the roof relative to pay, and the mortgage interest deduction is one of the causes.

And the states have avoided the responsibility of caring for the lest fortunate by handing out checks and contracting with businesses to take the burden. The costs are greater, but the services provided are inferior. And that is another form of public debt.

This became somewhat broader than I intended, but the issues are all intertwined.

Corporate tax rates through the decades