The Numbers

National Debt vs. GDP vs. Tax rate

This chart shows the relationship between the national debt and taxation. The debt has increased as taxation has decreased. The debt is shown as a percentage of Gross Domestic Product (GDP). It allows us to talk about debt without bringing inflation into it.

The black curve shows the upper marginal individual income tax rate. This is the tax rate the wealthy pay. It's a good indicator of overall taxation; as this rate is reduced, so is the rate for everyone else.

After World War II, the debt declined rapidly thanks to the upper marginal tax rate of 91 and 92 percent. When the rate was cut to 70 percent during the Johnson Administration, the debt declined more gradually. The tax cuts during the Regan Administration were far too great and the debt climbed back up.

Reagan cut the tax rate to 28 percent while simultaneously increasing military spending. Regan's pet military project was called the Strategic Defense Initiative and nicknamed Star Wars. It was a very expensive failed program that helped increase the national debt.

The Clinton Administration raised the tax rate to 39.6 percent and cut Reagan's Star Wars program, which arrested the debt increase for a time. But the Bush Administration's Republican Congress cut the tax rate to 35 percent, while starting wars in Iraq and Afghanistan. The debt soared.

COVID

The COVID pandemic dramatically increased government spending and reduced GDP—a nightmare scenario given the already high debt. The debt shot up to over $30 trillion.