Robert Reich: Here's the biggest untold story about how we pay for government
The biggest untold story about how we pay for government involves a big switcheroo by America’s wealthy.
Decades ago, wealthy Americans financed the federal government mainly by paying taxes. Their tax rate was far higher than what it is today.
Now, wealthy Americans finance the federal government mainly by lending it money, and collecting interest payments on those loans, profiting when the rest of us pay them back.
Follow the money: As the debt continues to grow, interest payments are becoming huge. Taxpayers could soon be paying more in interest on the federal debt than we spend on the military or on Medicaid.
Interest on the debt is expected to hit $390 billion next year, nearly 50 percent more than in 2017, according to the Congressional Budget Office.
Who’s receiving these interest payments? Mostly Americans, not foreigners. And most of these Americans are wealthy investors who park their savings in treasury bonds held by mutual funds, hedge funds, pension funds, banks, insurance companies, personal trusts, and estates.
The richest 1 percent of Americans now owns 40 percent of the nation’s wealth, which is more wealth than the bottom 90 percent put together.
Which means a big chunk of the growing interest payments American taxpayers make on the federal debt is going to… rich Americans.
Now, keep following the money. One of the biggest reasons the federal debt has exploded is that tax cuts, starting with the Bush administration in 2001 and extending through Trump’s 2017 tax cut, have reduced government revenues by over $5 trillion.
The Trump-Republican tax cut will cause the debt to explode even further. Trump’s own Office of Management and Budget predicts an added $100 billion a year in deficits over the next decade, adding up to $1 trillion of additional debt.
Keep following the money: Most of the benefits from those tax cuts are going to the wealthy. 65 percent have gone to the richest fifth of Americans, 22 percent to the top 1 percent.
So you see the big switcheroo? The rich used to pay higher taxes to the government. Now, the government pays the rich interest on a swelling debt, caused largely by lower taxes on the rich. Which means a growing portion of everyone else’s taxes are now paying the rich interest on those loans, instead of paying for government services everyone needs.
That’s wrong. America’s wealthy have never been wealthier. They should pay their fair share of taxes. The big switcheroo should be reversed.