Everything seems to be political nowadays. Wanting clean air and water and avoiding massive natural disasters is political in the United States, while hundreds of countries agree that climate change is a global problem. (Of course, the United States isn’t the only place it is political, but I wanted to point out that there is incredible agreement across essentially all countries will all types of backgrounds and politics.)
It’s okay for some things to be political though. For example, today’s topic, fixing the National Debt is going to be political. The good news, for me at least, is that I don’t have to get swept up into the politics of working with everyone and getting the votes to make it all happen. It’s nice to have the easy job, but it doesn’t pay nearly as well as those D.C. politicians. It’s just another of life’s trade-offs.
(As a side note, I’m “rushing” this article out quick. Due to Hurricane Henri, I have some extra yard work to do. Some of these political discussions can get nuanced and I admit that I don’t have the time to research everything extensively. Consider this a throwback to blogging days of 2006 where blogs were intended to be a quick way to share ideas without the need for outlines, editors, publishers, etc.)
Why the National Debt is So High
The national debt has never been higher. We’ve added to it with Tax Cut and Jobs Act and COVID aid in recent years. Most of the tax cuts went to corporations. The hope was that companies would use the money to invest in innovation, lower our (already very low) unemployment, and boost wages. For the most part, companies executed large share buy backs which helped their stock prices. On a personal level, our net worth has more than doubled in the less than four years it’s been around. When corporations get rich, those who are shareholders share in that prosperity.
It feels as if the Tax Cut and Jobs Act simply added a few trillion out of the national debt and gave it to investors. It was an indirect transfer and surely some jobs and wages were boosted, but that was a small part. The Trump tax cuts will add $4 trillion to the national debt over by 2026 so it seems safe to say that we’ve some of that.
The National Debt has gone up around $5 trillion dollars since March of 2020. We can pretty clearly put most of that on COVID, except for the overlap with the aforementioned tax cuts. Some could argue that we didn’t need to borrow this much money. I’m not going to dig into that argument. Both Democrat and Republican administrations have borrowed for COVID, so I think it’s fair to just accept it was appropriate.
Five Steps to Fix the National Debt
- Don’t Fix It
- Reverse the Tax Cuts
- Cut Military Spending
- Implement a Wealth Tax
- All of the Above
We’ve had a national debt for a long time now and we still keep plugging away. It’s not like personal debt where your credit card bills just keep crushing you. Japan’s national debt vs. its GDP is huge (over 250%) much bigger than ours (~130%). It seems like they are still going and haven’t sunk into the ocean yet.
I’m sure there are plenty of people who have great macroeconomics degrees and education, but I’m not one of them.
As much as I like having doubled my net worth, if we want to fix the national debt, this is the place to start. There are companies that can use tax write-offs to pay nothing.
The argument against more corporate taxes is that companies will just go to another country. This has already happened for years as companies have moved some of their assets to Ireland. I think the answer is that the laws need to be fixed. Apple by any stretch of the imagination is a Cupertino, CA-based company and shouldn’t be able to move their tax structure to another country without significantly selling their main headquarters and moving all their employees (or rehiring) in another country. Apple simply isn’t going to do that, so it’s okay to raise corporate taxes.
This same argument comes into play with income taxes. People will just go live in other countries. It’s not easy to move away from family, friends, and familiarity. There will certainly be some people who do it. I argue that the people who are very, very wealthy can afford to live wherever they want to. It’s not like anyone has proposed a 90% tax rate where someone may say, “I’ll give up this position that makes me millions and take my chances in a new country.”
As a pseudo-military* family, I hope I can say this without too many arguments. The United States spends the most money on the military. We spend three times as much as China who is #2 and 10x as much as the #3 country (Source.) If we got our military spending down to China’s level, we’d have a half-trillion dollars each year to apply to the national debt.
That might be a drastic cut, so we won’t assume that we’ll save 5 trillion over 10 years. Maybe 3 trillion over 10 years is possible though.
Elizabeth Warren has been championing the idea of a wealth tax in addition to our income tax. It may sound like a radical idea, but we’ve only had an income tax for a little more than a hundred years. Income tax was a radical idea back then and now it seems normal.
Why a wealth tax? For years the very wealthiest people have been able to manipulate the tax system to avoid paying taxes. This was covered ProPublica’s Reval of the Wealthiest People’s Taxes. Peter Thiel himself may avoid paying taxes on billions his Roth IRA.
The Tax Act breaks for corporations went to those who owned the most corporate stock making multi-millionaire (or billionaire) CEOs. When we double our net worth it is a big deal for us personally, but it pales in comparison to the tens of billions that Elon Musk or Jeff Bezos add to their net worth.
While we can (and should) fix the income tax system, the ship has already sailed on that money. A wealth tax would only impact around 70,000 of the United States’ 328 million people (Source). It’s such a small percentage that it’s hard to imagine. It’s about 1 in 4700 people. I doubt any of those people are reading this article.
It’s not too radical to implement something that is estimated to bring in $2.75 million in revenue over ten years. It certainly won’t fix the national debt by itself and admittedly Warren’s goal would be to spend that revenue to fund other programs.
If we decide to make fixing the national debt a priority (and that’s a big if), then it’s possible we can lower it 7-8 trillion dollars over the next years with a variety of programs. It won’t be easy, but nothing is easy when we are talking about tens of trillions of dollars. There’s a saying that you can turn an ocean liner around on a dime and that’s the case here.
I know this is a big and very complex topic and this only scratches the surface. I know that many people, probably everyone reading this, has bigger problems on their mind. What do you think? Is it worth putting this kind of effort into fixing the national debt? Did my writer’s block become completely transparent as I didn’t cover much personal finance in this article? Let me know in the comments.
* My wife is in the Public Health Service which isn’t technically considered military, but has military officer designations, grades/pay, base access, etc. When I read the CARES Act last year, it seems to have been upgraded to full military status, but I think I’m misreading it as no one (even PHS) seems to acknowledge it.
I’ve been waiting for some comments on this “hot” topic. Or maybe it’s just not a hot topic any longer. I think the only option is some part of “all of the above”, though I think having people and corporations pay a fair share of taxes is the best option. But trying to explain that some groups need to pay more taxes riles up the same people who don’t believe in taking necessary actions in a pandemic, though they reap little of the benefit from the current tax struction.
Lazy Man says
I was hoping to generate a discussion here, but maybe it was just too far outside of what a personal finance typically covers.