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Tax Policy Contributing to National Debt

Tax Policy Contributing to National Debt

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Published by elaine cullen

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Published by: elaine cullen on Aug 23, 2010
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08/23/2010

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In the last legislative session, 11 Congressional House members, including Dave Obey, theChairman of the House Appropriations Committee and Congressman John Murtha, the Chairmanof the Defense Appropriations Subcommittee, introduced legislation that would end the practiceof paying for the war in Afghanistan with borrowed money by imposing a war surtax beginningin 2011.The issue of how and from what sources U.S. budget needs are being funded is a vital one andnot just for war expenditures in Afghanistan.Historically, a large percentage of the U.S. budget was funded by taxes. In the United States,after World War Two, the levels of national debt remained relatively stable until 1980. In the1980¶s, with the Reagan administration in office and with the new Federal Reserve ChairmanPaul Volcker, an economic policy was initiated where instead of paying for the yearly national budgets primarily through tax revenues, a much larger percentage of the budget was funded bydebt securities, such as U.S. treasury bonds and U.S. savings bonds.During the Reagan administration, although spending in areas such as defense spending wereincreased, the Reagan administration pushed through massive tax cuts. Instead of funding the budget costs with taxes, as had historically been the case, a policy was initiated where largeamounts of U.S. national debt securities were used to fund the budget, instead of tax revenues.With the outstanding debt from the debt securities and the added interest payments on thedebt securities, something that does not have to be paid if the budget is paid with taxes, thisresulted in a massive piling up of the national debt in the 1980¶s.With the interest rates as high as20% in the 1980¶s, this resulted in a massive amount of interest payments being owed for budgetfunding that had historically been funded through taxes.By the end of the Reagan administration, the U.S. national debt had tripled. The U.S. hadgone from being the largest creditor nation in the world to the largest debtor nation. The majorityof the national debt was interest payments on the debt securities that had been used for national budget funding.The 11 congressional members introduced legislation to fund Afghanistan war budget coststhrough tax revenues, instead of debt securities, starting in 2011. The question is, why isn¶t themajority of the U.S. national budget being funded with tax revenues instead of debt securities,and now instead of 2011?The massive levels of U.S. national debt have not been caused by increased spending, but bya shift of paying for U.S. budget needs by U.S. debt securities and having to pay both thedeferred payments and the interest rates as well.The correlation between a disastrous national economic and tax policy contributing to thenational debt is evident by what has occurred since the 1980¶s. In the mid to late 1990s, duringthe Clinton administration, taxes were raised to meet budget needs, which cut the use of debtsecurities for the funding of the national budget. By the late 1990¶s, the U.S. was running budgetsurpluses and there were estimates then that by the year 2010, the U.S. could clear it¶s nationaldebt.The reason that didn¶t happen was because of a return to the financially destructive tax

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