What About The Debt?
When Biden took office, Republicans seemed only capable of talking about the debt. It didn’t matter that Trump had just increased the national debt by 40% in a single term or that his huge tax cuts for corporations and billionaires were, and are, still in effect. Republicans insisted that the national debt was the biggest crisis facing our nation and that it would be America’s downfall.
The GOP was so focused on the debt that when the Republican Speaker of the House, Kevin McCarthy, finally worked out a deal with President Biden on the debt ceiling that didn’t involve massive cuts to programs for needy Americans, Republican Matt Gaetz led the successful charge to oust McCarthy from his position.
Republicans continued to shout about the debt and threatened to shut down the US government by not agreeing to a budget. Much to their chagrin, continuing resolutions kept the government operating until the budget was finally agreed to six months later. An act that caused another attempted ousting of a Republican Speaker.
The election is ~90 days away, and instead of decrying the national debt, Republicans are hardly even mentioning it. The debt is still there, and it is still rising. So what happened?
You can’t decry the national debt while planning to explode it.
When a nation’s debt is growing, tax cuts, especially large tax cuts, will always worsen the problem. This is the main reason why, despite threatening a government shutdown during debt ceiling and budget negotiations in the past, Republicans are hardly talking about the debt today. Trump is promising even more tax cuts for corporations and wealthy Americans if he wins in November.
Republicans have offered no realistic plan to deal with the deficit or debt.
How bad is the debt?
When you hear that America is $35 trillion in debt, it sounds massive and unmanageable. But that number alone is essentially meaningless.
If you are personally $100,000 in debt while only earning $40,000 a year, you’re in a seriously tough situation, as the debt will continue to rise faster than you can pay it off. But if you were earning $1,000,000 a year, that $100,000 of debt would be minimal. You could pay it off within a year or slowly pay it off over time while your wealth grows. This is why you need more information than just the dollar value of debt.
For countries, debt is viewed as a relationship to the gross domestic product, or GDP, to determine how impactful the debt is. The GDP is how much money the nation as a whole produces in a given year.
The United States’s GDP is ~$29 trillion. That means the US has a debt-to-GDP ratio of 121%. How bad is that ratio? We don’t know. But it is lower than the 135% that Trump ended his presidency with.
Economists don’t know what a bad debt-to-GDP ratio is. This is because economics relies heavily on past information, and there isn’t any information on what ratio becomes a big enough burden to cause problems.
At one point, economists feared that a ratio above 100% would be catastrophic. Today, 19 countries have exceeded that threshold, and nothing has happened. Japan has the worst ratio, at over 250%.
Managing National Debt
There are four main ways to deal with the debt:
Cut Spending
Increase Revenue
Increase GDP
Improve efficiency
Cutting Spending
In 2023, the federal government generated $4.44 trillion in revenue.
Expenses:
Social Security - $1.3 trillion
Interest on the debt - $659 billion
Defense - $805 billion
Medicare/Medicaid - $1.455 trillion
Veterans programs - $302 billion
We’ve already exceeded federal revenue. Additional programs include transportation, education, retirement funds for federal employees (including the military), income security programs, and other miscellaneous programs.
Social Security doesn’t add to the national debt; it is paid for by its own specific tax. We have to pay the interest on our debt. Neither party seems willing to cut or even freeze the military budget, and both parties previously agreed not to cut Medicare or Medicaid.
Overall, the federal government spent $6.1 trillion last year, creating a deficit of $1.7 trillion. The US cannot cut its way out of our debt.
Increasing Revenue
For decades, Republicans have vowed never to raise taxes. The problem is that taxes are critical to allowing a government to function. Contrary to popular conservative myths, cutting taxes for the wealthy doesn’t trickle down to the middle class, and raising taxes on corporations doesn’t cause significant price increases.
The American middle class was at its strongest during the late 1960s when corporate taxes were at 50%, and the top income tax bracket was 70%. That is also when average GDP growth was at its highest.
Trump lowered corporate taxes, and through varying tax loopholes, many of the largest corporations began to pay little to no tax at all. Yet these last few years, corporations have broken profit records, enriched their CEOs, and performed numerous stock buybacks, all while driving up inflation through price gouging. Lowering corporate taxes didn’t lower costs; it enabled greed.
President Biden enacted a minimum corporate tax of 15% on corporations whose revenue exceeds $1 billion. This minimum corporate tax has limits and some loopholes, but it does increase the tax burden of companies such as Amazon, Google, and Microsoft, which have all been finding ways to have a small single-digit tax rate.
Biden also wants to enact a minimum tax on billionaires for the same reason. Unfortunately, with a divided Congress, the minimum billionaire tax has not found a path to becoming law which is also the holdup on Biden’s desire to raise the corporate tax rate from 21% to 28%.
Another tax increase is simply letting Trump’s tax cuts expire, which they are set to do in 2025. While the corporate tax cuts are permanent, the personal income tax cuts are not.
Even with a billionaire minimum tax, a 28% corporate tax rate, and letting the tax cuts expire, America will continue to have a deficit which means the value of the national debt will continue to grow, although the growth will be slower. This is why we need to continue having strong GDP growth.
Increasing GDP
The combination of increased revenue with increased GDP growth would steadily reduce the debt-to-GDP ratio, making the debt less severe with each passing year.
An easy first step is to raise the federal minimum wage to $17 an hour, which is what it would have been if it had kept up with inflation since its peak in 1968. Increasing the minimum wage causes a natural increase in middle-class wages as well, creating more buying power for most Americans, which in turn is put back into the economy through spending on goods and services.
Not only would increasing the minimum wage grow America’s GDP, but it would also increase tax revenue and decrease reliance on federal aid programs, all of which would help reduce the deficit.
Another avenue is investing in businesses, such as Biden did with high-tech manufacturing, to bring it back to the US. This investment has, in turn, spurred private investment, which has created a historical high in factory investment. The result has been a manufacturing and construction boom, which combined have created over 1.6 million jobs.
Investments in future technology and markets, such as those made into green energy, are another way to improve future GDP. The world is looking to buy green energy technology and electric cars. Right now, other countries mainly buy from China, which took the lead in these sectors when America cut its investment.
Efficiency
A fourth avenue similar to cutting spending is increasing the efficiency of government agencies and programs to reduce costs.
An example of this would be simplifying the US tax code so that tax returns are simple and straightforward. This would reduce the cost of reviewing and auditing tax returns. Such a change would increase revenue from easier enforcement while reducing the IRS's operating costs.
An even better example is a basic income program like the one linked at the end of this article. A proper basic income program would be billions cheaper than current federal aid programs and is proven to reduce poverty, increase wages, reduce crime, and even improve employment.
Only one political party, the Democrats, has made any real attempt to reduce the debt burden in recent years.
The federal debt will not improve significantly until Republicans are willing to act on real solutions, including raising taxes for the wealthiest Americans and corporations. But in modern, hyperpartisan politics, where misinformation runs rampant, issues like the debt and border are intentionally kept a problem to be used for political rhetoric.
It is up to the American people to say enough is enough and push for proper, effective, lasting change. We can solve our debt and improve lives at the same time. All it takes is the will to do so.
