Uncle Sam – The King Of Debtors

This blog has been active since 2022, and has covered many aspects of unjust personal debt, such as prisoners owing debt for child support, or veterans owing money for medical care actually received at the VA.

My focus has always been on individual debt. I have not addressed the larger problem of public debt.

Now it’s time to do that…….

You don’t get any larger than the U.S.  national debt — $36 trillion, and growing by $1 trillion every 3-4 months.

When the national debt is this large, there is frankly no way to pay it off. 

Moreover,  if interest rates gradually rise to 5 percent or 6 percent, interest costs could start consuming nearly all annual tax revenues. There would be no tax revenues left to finance any federal programs.

 The driver of this debt is no mystery. 74 million retiring baby boomers are driving annual Social Security and Medicare costs far above their payroll tax and Medicare premium revenues. 

The annual program shortfalls—which must be funded with general tax revenues and new borrowing—will exceed $650 billion this year.

 By 2034, Social Security and Medicare will be collecting $2.6 trillion annually in revenues, while costing $4.8 trillion in benefits and associated interest costs.

 Experts have warned that surging retirements in the 2010s and 2020s would push Social Security and Medicare costs dangerously far above their revenues. 

Yet attempts to gradually phase in reforms (while the boomers were still young enough to adjust) went nowhere. 

By now,  just stabilizing the debt will entail deeper and more drastic Social Security and Medicare reforms, such as:

–  Social Security’s eligibility age must rise; its benefit growth formulas must be significantly curtailed for above-average earners; and its taxes may need to rise too. 

– Medicare premiums must steeply rise for above-average earners, and there must be price and payment reforms to scale back costly procedures.

At the moment, Washington will not even discuss this. We’re adding debt at the rate of $1 trillion every 120 days.  

Kevin Dowd covered this well in a 2020 Cato Journal article called Modern Monetary Theory and the Birth of the People’s Economy.

 He wrote:

“Vice President Dick Cheney famously declared, ‘deficits don’t matter’—and when Great Recession stimulus spending brought the first trillion-dollar deficits without any immediately apparent danger, all of Washington wanted to join the party. 

 Presidents Trump and Biden enacted $12 trillion in deficit-financed legislation in just eight years……

Washington refuses to confront the budget math, relying instead on publicity stunts. Voters search for “one cool trick” that would quickly and painlessly balance the budget.  

Start with Republicans.

 The GOP canon begins by asserting that deficits are always driven by Democratic spending. This narrative is flatly contradicted by Presidents George W. Bush and Trump, both of whom expanded federal spending by trillions of dollars while enacting trillion-dollar tax cuts. The last time Republicans controlled both the White House and Congress, in 2017 and 2018, they immediately cut taxes by $1.5 trillion, expanded discretionary spending by 13 percent in one year, and rejected all entitlement savings.

“But those tax cuts paid for themselves,” Republicans retort. This math  requires that every tax cut dollar adds at least $5 in economic output, taxed at an average 20 percent rate to recover that lost revenue dollar. 

On the spending side, Republican voters are quick to claim that a $2 trillion deficit can be mostly eliminated by cutting foreign aid (just 1 percent of federal spending) or the classic “waste, fraud, and abuse,” as if such a line-item exists in the federal budget to be zeroed out. 

Theit rhetoric tends to fall apart when you calculate how much of that spending you’d need to cut to meet the GOP’s balanced-budget targets: You’d need to eliminate all funding for veterans’ benefits, child credit payments, the earned income tax credit, school lunches, disability benefits, K-12 schooling, health research, unemployment benefits, food stamps, homeland security, infrastructure, embassy security, federal prisons, border security, and much more.

There is not much Republican appetite for that.  

GOP leaders still rely on gimmicks. Trump absurdly promises to pay off the $27 trillion federal debt with oil and gas revenues. One recent Republican presidential candidate, Vivek Ramaswamy,  promised to grow the economy to a balanced budget. That lazy contention not only requires nearly impossible growth rates; and it fails to acknowledge that faster economic growth also raises Social Security costs.

Meanwhile the  Democrats have built their own bubble of misinformation and excuses.

 Their progressive narrative claims that deficits do not matter and are merely a green-eyeshade scheme to serve the wealthy over the people. These progressives offer no answer for who will lend Washington at least $120 trillion over 30 years, or how such debt will affect the economy. 

 Another Democratic myth is that tax cuts for the wealthy caused today’s deficits and that taxing the rich can eliminate the problem. 

 In its more extreme form, this fiscal fallacy insists that simply taxing the rich can not only close budget deficits over three decades, but also finance a full Nordic social democracy. 

The first problem with this claim is mathematical. Even seizing every dollar of wealth from America’s 800 billionaires—every home, yacht, business, and investment—would merely fund the federal government for nine months. And then the money would be gone. So would your 401(k), given that most of this wealth would be seized from the stock market.

The Sanders fantasyland tax agenda of a 77 percent estate tax, 8 percent wealth tax, and huge corporate, income, and investment taxes could not even finance Washington’s current spending promises, much less his enormous new spending agenda.

 Progressive lawmakers exaggerate tax-the-rich savings by recycling the same few tax proposals to pay for countless spending proposals. 

When progressives call for matching Europe’s higher tax revenues, they ignore the fact that virtually all of Europe’s revenue advantage results from broad-based value-added and payroll taxes, not additional upper-income taxes. 

 Medicare for All is more of a talking point than a serious savings proposal. Bills from Sanders and Rep. Pramila Jayapal (D–Wash.) promise nearly impossible efficiency savings, yet fail to specify any new provider payment system to achieve them. Instead, the bills lamely assign someone else to figure out how to make it all work. 

It’s time for voters and politicians to confront some inconvenient truths.

 Washington has promised substantially more spending than the economy and tax system will be able to deliver. There is no easy solution that everyone missed or that politicians are hiding from you. Washington cannot continue its current course toward a debt of 200 percent or even 300 percent of the economy. 

The financial markets may not be able to lend us between $120 trillion and $150 trillion over three decades at interest rates of just 2 percent or 3 percent. 

We do not know precisely when the financial markets will tap out and demand unaffordable interest rates, creating a vicious circle of rising debt and interest rates. There are predictions of such a debt crisis in 2025.”

Note: There are a few dissenting voices who claim that the national debt is not particularly worrisome. This includes the economists in the ‘Modern Monetary Theory’ camp, plus a few mavericks like Neil Buchanan, quoted here:

 “One-third of the corporate debt in 2019 was owed by nineteen of the largest and most successful Fortune 500 companies, including AT&T, Verizon, and Ford Motor Company. 

Meanwhile, only eleven out of the 500 largest companies have decided not to borrow any money (although they can easily do so at any point, and some surely did during the pandemic), meaning that 489 of America’s largest companies carry debt.

None of these companies necessarily takes on debt with the idea that they will retire it later. Unless a company defaults, it will pay principal and interest on each bond until it is paid off, but it will generally roll over its debt (paying off old debt while taking on new debt), almost certainly in perpetuity, just as the federal government plans to do. 

This is called good financial management.  

If borrowing money were always and everywhere a bad thing, would America’s most successful companies do so much of it?  

 Every business school curriculum teaches about “debt management,” and I guarantee that the syllabus does not say: “Pay it all down. End of story.”

 The reality is that debt—for both government and business—will and should rise over time.

  We do not need to panic when someone tells us that the sky is falling because of historic levels of debt. Every day is a record-setting day for borrowing. Get over it.”