Debt & Taxes
- America shoulders an unprecedented debt burden. According to USDebtClock.org reports, in February 2022, the U.S. hit over $30 trillion in national debt. That about $91,806 per citizen or $242,000 per taxpayer — thanks in large part due to COVID-related binge spending.
- America’s bond rating is at risk with high debt. Our debt-to-GDP ratio is now nearly 126 percent, far higher than the 53 percent in 1960 (just prior to LBJ’s massive “Great Society” welfare binge spending that decimated African-American families), 35 percent in 1980 and 59 percent in 2000. If we layer on even more national debt — just like an individual buying too much on a credit card — we would get an American bond downgrade.
- A debt downgrade could spark inflation. Just as a person’s credit reports, pulled from agencies like Equifax, TransUnion and Experian America, affect the pricing of his or her mortgage or car loan, the more credit card debt you have, the lower your credit score will be.
- On a national level, America gets credit reports from three major bond rating agencies: S&P Global, Moody’s Investors Service and Fitch. If we don’t stop the government spending in its tracks, America won’t be prepared for the next real emergency. Listen for more here, “Congress’ Debt-Limit Hike Ignores Our Dangerous Addiction To Spending.”
- With excessive government spending, we won’t have much extra room before we get downgraded and everything gets more expensive because our interest rate for U.S. sovereign borrowing spikes. It’s the exact opposite of what we need during this unprecedented inflation craze.
- Read more here, “Why The $30 Trillion U.S. Debt Matters.”
- Read more also from The Wall Street Journal editorial board here:
The first point is that the debt really isn’t $30 trillion. About $6 trillion of that is debt the government owes to itself in Social Security and other IOUs. Social Security is a promise made by politicians to workers. It isn’t a contractual debt like a Treasury bill that must be repaid or risk default. Future politicians can refuse to pay workers what they owe, and eventually they will.
The debt held by the public is some $24 trillion, which is bad enough. That’s more than 100% of GDP, a level the U.S. has previously reached only during wartime. Much of this debt is held by Japanese or Chinese, who won’t take kindly to not being repaid. But they’ll keep lending that money as long as they assume they will be repaid.
The real issue is interest on all that debt, and what it means for the federal fisc. The debt costs very little when interest rates are near-zero. But when they rise, as they soon will, the burden of interest costs on the debt rises too. By one measure every percentage point increase in rates adds $100 billion a year or more to debt costs. That must be financed either with higher taxes or more debt.
- How do you cure a shopaholic? First, cut up his or her credit cards. That happened at least temporarily in December, when Sen. Joe Manchin (D-W.Va.) blocked the Build Back Better bill. Another step: keep the pressure on your lawmakers to stop new spending until we pay down more debt and reduce our interest payments. Future generations will thank you.
- America’s founding sprung in part from the resistance to taxation without representation at the hands of the British monarchy. Protesting unfair tax policy is therefore in our very American civic bloodstream. Economic scholar Art Laffer, a member of President Reagan’s Economic Policy Advisory Board and an economic advisor to former President Trump, has modeled what became known as “The Laffer Curve,” the idea that while, yes, we do need some taxation to have a productive society, there is a breaking point where the taxation starts to erode productivity and damage the economic machine that brings prosperity.
- Raising taxes has many negative downstream effects. Sen. Mike Lee (R-Utah), ranking member of Congress’ Joint Economic Committee, explains why in an analysis cautioning about the negative impact of government binge spending: “[L]arge government spending packages are usually accompanied by tax increases which reduce economic growth by depressing employment and investment. One study finds that, if the $3.5 trillion budget resolution boosts productivity in line with historical norms, the effect of the corresponding proposed tax increases eliminate any benefits of the government investment, decreasing economic growth only five years after its enactment.
- In December 2017, Congress passed and President Trump signed the Tax Cuts and Jobs Act (TCJA), a package of sweeping reforms to the U.S. tax code, both for individual filers and for corporations. The TCJA reduced income tax rates for workers at every level and nearly doubled the standard deduction, shielding more income from taxation. It expanded the Child Tax Credit and preserves other popular tax benefits like the deductions for mortgage interest and charitable giving, among others. Read more about that here.
- Critics of the TCJA claimed it would only benefit business owners and wealthy investors at the expense of middle class families. Yet, fewer than 24 hours after the bill’s passage, businesses were already putting real money in workers’ pockets by raising pay and handing out bonuses. Companies also announced plans to invest in their workforce and hire more workers. Read more about the immediate business response here.
Reviewing the longer-term impact, a December 2021 study showed the TCJA “disproportionately benefited lower- and middle-income working families.” What became clear is that smartly-structured tax cuts help poor and middle-class families. Read more about the study here.