Thinking About The National Debt

The American national debt is a number that many of us fret about a great deal. However, presently the number is so large most of us would like to just forget about it. Total debt, which has built up over a lengthy period, is now at about $17 trillion. It is, of course, a very large number that’s hard to think about. One idea of what it means to each of us personally, is that if we tried to decide how much it would cost every man woman and child in the country to pay it off we would divide $17 trillion by the number which signifies the population of the country (about 320 million). If we do that each of us would owe about $53,000.

An interesting way to identify each of the 0.1 percent richest Americans is wrapped around the idea of how to handle the national debt individually. They are among the few people in the country who could write a check immediately today to pay their share of the debt without feeling it at all — expect psychologically perhaps. The next 0.9 percent richest Americans would feel such a one time payment a little more perhaps, but they could handle it fairly well also. A payout of $53,000 might affect their savings rate over the course of a few months, but they might also figure out a way to make such a payment tax deductible. The next five percent most rich Americans could likely pay out the $53,000 over the course of a year, perhaps taking some of the money from retirement savings. The next 15 percent could pay their share as well, but likely if they tried to do so over the course of a year, they would take a significant fraction from savings and/or such a payment would begin to affect the major ways they spend money. That drop in spending would begin to affect the economy in a negative way. That would also be true for the next 60 percent most rich Americans. They could pay but it would begin to seriously affect the economy if payments were to be expected made quickly, i.e., over the course of a year or two or even more. The bottom end wage earners in the country could not make a $53,000 payment even if it were done over a multiple year period.

From the above thought experiment let’s say we should ask the top 20 percent most rich Americans to make their $53,000 payment toward paying down the debt in addition to their regular taxes owed. That would not mean that we could immediately cut the total national debt by 20 percent since only heads of households would be paying — so we’re only talking about 20 percent of about 150 million at most, and not 320 million. They would not paying for their children and spouses. Thus, overall we might get rid of about 10 percent of accumulated debt or only $1.7 trillion. The $17 trillion would then drop to about $15.3 trillion. However, we would have also accumulated debt in the current year, which presently amounts to about 0.5 trillion. We would add in the next year about 0.5 trillion back again making the amount owed about $15.8 trillion. It would still be a nice reduction in the debt, but we couldn’t do it again — we would begin taking working capital from the rich at a prodigious rate, and in the long run that would have a marked negative impact on the economy.

The best way to begin to chip away at the total national debt might be to start by reducing additions to the debt to zero; that is, balance our year-to-year budgets. Since we are currently spending 0.5 trillion or more than we take in, we need to figure our either how to cut expenditures or add revenue or do a little of both. Economists generally agree that the best way to balance the budget is to grow the economy; i.e., put more people back to work. The more they earn and the more they work the more tax revenues will go up. That is now happening slowly and will continue over the next year or two at least. We can also create a modest phase-1 tax reform that will expand the tax rolls while all will pay slightly less — collecting more because there are more paying taxpayers and that more than offsets the magnitude of individual tax payments. Let’s say that the combination of putting more and more people onto the job rolls and off unemployment rolls increases tax collections by about $200 billion next year and by another $100 billion the year after. If spending stayed the same we will have decreased yearly debt from $0.5 trillion to about $ 0.2 trillion. Thus, we need to cut expenses by about $0.3 trillion. Over the next two years we’d have to find this in cutting tax loopholes, defense programs, social security, and Medicare-Medicade reforms. Adjustments in “tax loopholes” and in cuts to programs that are more modest to begin with. The Congress must also adjust current immigration strategies otherwise we will begin to move more more rapidly toward net emigration, which could have a profoundly negative impact on the above numbers. Immigrants pay taxes, create jobs through the creation of new businesses and, of course, pay taxes. Major immigration reform by itself would both speed us toward a balanced yearly budget and in time bring us toward a year-to-year surplus that would aid in beginning to pay down the debt.

Thus, over the next five years we can create first a balanced budget and then a year-to-year surplus. Total national debt would continue to rise initially to about $17.5 trillion and then begin to decrease such that by 2020 we could be down to about $16.5 trillion at leat, with additional cuts averaging about $1.5 trillion year-over-year and thus allowing a paydown of most of the debt by 2030.

Problems will arise such as the need to create a stonger safety net to deal with the largest generation ever to retire (baby boomers), a cost effective way to renew a rapidly degrading infrastructure — in particular, stronger renewal of more environmentally conscious energy generating and water generation and management systems. These will be ultimately more costly if they are ignored. But if these problems are met head on, they can be managed effectively while debt is paid down simultaneously.

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