"Rich Man, Richer Man"
by Sheila Kennedy
"One of the most trenchant commentators on America’s current disaster of an administration is former Labor Secretary Robert Reich. Reich’s tenure made him widely admired; in 2008, Time named him one of the Ten Most Effective Cabinet Members of the century, and in that same year The Wall Street Journal –not noted for its liberal bona fides–placed him sixth on its list of Most Influential Business Thinkers. He has taught at Harvard, Brandeis and Berkley.
Reich posts opinion pieces regularly, and they are all worth reading and considering. A recent one focused upon just who is “raking it in” as America’s national debt explodes. Much of that explosion, Reich tells us, is the result of the billions of dollars in lost revenue from Trump’s invalidated tariffs, and the effect of Trump’s tax cuts to big corporations and the already very wealthy. And then, of course, there are the soaring costs of Trump’s war.
Reich reassures readers that crossing the forty-trillion-dollar threshold doesn’t mean a depression is looming. But he focuses in on what we can only describe as the actual – and very troubling – effects of that debt.
The problem is that an increasing portion of our nation’s budget - and your tax dollar - is dedicated to paying interest on this growing debt. Annual net interest payments on the federal debt have surpassed $1 trillion, making servicing the debt one of the largest of all federal budget expenditures. That’s money we don’t spend on schools, healthcare, roads and bridges, and social safety nets. We’ll soon be paying more in interest on the federal debt each year than we spend annually on Medicare.
Reich then explains something that is not widely understood–the identity of those who benefit from those interest payments. This is an issue you hear very little discussion about, because the wealthy and powerful of this country would rather you not know. (And don’t expect Trump suck-up Bessent to tell you, because he’s too busy denying that economic inequality is worsening.)
Foreign governments and foreign investors hold only about 30 percent of our debt. The rest - roughly 70 percent - is held domestically. That is, we pay the interest to ourselves. And who, exactly, are the “ourselves” we are paying? Reich tells us that by far the largest amount - nearly half - “is held by mutual funds, pension funds, insurance companies, and banks.” And who owns those funds, companies and banks? Who holds the Treasury bills that are generating the growing amount of interest the rest of us are paying on the ballooning national debt? People at the top. Rich people.
Reich spells it out. The richest 1 percent of U.S. households hold about 35.6 percent of all financial assets - shares of stock, corporate bonds, and Treasury bills - so it’s safe to assume they hold at least a third of all Treasury bills. Here’s where things get really interesting.
Decades ago, wealthy Americans financed the federal government mainly by paying taxes. Their tax rate was far higher than it is today. In the 1950s, under President Dwight Eisenhower, the richest Americans paid a marginal tax rate of 91 percent. (Tax deductions and tax credits lowered this top effective marginal rate somewhat.)
Today, the tax rate on wealthy Americans is far lower. The richest 400 Americans pay an average effective total tax rate of about 24 percent - including federal, state, local, and corporate taxes. Jeff Bezos - America’s second or third richest person - paid no federal income taxes in 2018. Trump paid no federal taxes for years before he became president. So now, wealthy Americans finance the federal government mainly by lending it money and collecting interest payments on those loans.
So while the richest Americans are collecting those growing interest payments, the taxes they pay have reduced government revenues by $10.6 trillion, courtesy of the tax cuts bestowed by George W. Bush and Donald J. Trump. As Reich reminds us, since 2000, 65 percent of the benefits from those tax cuts have gone to the richest of Americans - 22 percent to the top 1 percent. As he sums up: “Decades ago, the wealthiest Americans financed the government by paying higher taxes. Now, the government pays wealthy Americans interest on a swelling debt, caused largely by lower taxes on wealthy Americans.”
The taxes on ordinary Americans increasingly go to pay wealthy Americans interest on those loans - rather that funding the government services everyone needs. And that is the real problem with our enormous national debt."
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