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Our national debt problem really is simple

Dylan Matthews says that a sign of aging is that he's become more concerned about the national debt. Maybe. But I was old back in 2010 and I'm old now, and I agree that this is all due to the fact that things have changed:

The 2024 economy is not the 2011 economy. Interest rates are much higher. Unemployment is at 4 percent, a number that in 2011 we didn’t dare dream of. Wages are rising, especially for the lowest-income workers. We had the first major inflation episode in 40 years, though it finally appears to be subsiding. And the national debt is climbing higher and higher.

Yep. You can read Dylan's piece if you want the full 4,500 word (!) breakdown, but I'll limit myself to a thousand words in the form of a single picture. This is a simplified version of a chart from the Center for American Progress:

If it weren't for Republican tax cuts, the national debt would currently be at 60% of GDP, a very non-scary level.

Our deficit problem is very simple. General spending hasn't increased, so it's not to blame. Social Security and Medicare spending have increased, but there's not much to be done about that. It's demographics, and both programs are far too popular to be meaningfully cut. Likewise, the social safety net can be cut in only small ways.

There's only one way to rein in the deficit: higher taxes. But Republicans won't allow it—and until that changes there's nothing we can do. Ignore anyone who tries to tell you it's any more complicated than that.

42 thoughts on “Our national debt problem really is simple

  1. SwamiRedux

    So even if we get rid of just half the Bush/Trump tax cuts we'd have a ton of money we could put to productive use? Like infrastructure, climate change, education...

    1. Creigh Gordon

      No. To build infrastructure, fight climate change, promote education, provide medical care, etc. etc. we need labor, materials, infrastructure, technical know how, and political will. These real resources are limited and we must use them wisely if we are to maximize our economic well-being. But if we really want to do these things we can mint trillion dollar coins as necessary to pay for them. A nation that prints money is not revenue constrained.

    1. Batchman

      The cartoon misses the point. Raising the minimum wage is a way for Democrats to give folks more money without raising taxes. It works by applying pressure to the private sector to pay more.

      1. cld

        I have the impression there are a lot of people who vote for Republicans who can easily convince themselves the minimum wage is a tax.

  2. Jim Carey

    There's only one way to rein in the deficit: higher tax revenues. Ignore anyone who tries to tell you it's any more complicated than that.

  3. Justin

    Someone told me I was wrong the other day when I waved at President Clinton for having balanced the budget. (Fuck off austin) I wrote that Americans made another choice. These tax cuts were that choice (via Bush and Trump). Harris is wrong. Don’t cut taxes. Raise them. And shoot the billionaires. Just kidding! About the shooting.

    Funny story… I went to the “athletic club” this morning and heard the resident trumper whining about Harris not extending those tax cuts. ???? while he was naked no less. Ugh.????

    1. ProbStat

      As I recall, under Clinton the economy was heating up (... those damn Democratic policies, don't you know) and then-Fed Chair Greenspan was looking at raising interest rates in order to slow things down. Clinton met with him, and it is easy to discern that they came to an agreement that Clinton would promote some tax increases (fiscal restraint) and that this would allow Greenspan to forestall interest rate increases (which would have been monetary restraint).

      So interest rates stayed low(-ish), the budget ended up being balanced, and the economy continued to expand -- it was terrible, I tell you!

      Contrarily, W Bush and Dumpster cut taxes when the economy was doing very well, blowing a hole in the budget that left us with little dry powder when the Great Recession and then the pandemic hit. Just destructive, although Trumpublicans don't care if the economy founders as long as the oligarch class has more money.

      1. Creigh Gordon

        NBER declared a recession in March of 2001, some two months after hapless GWB was inaugurated. The recession was a result of Clinton/Republican Congress' budget surpluses in FY98-00 which drained a half trillion dollars out of private sector savings as tax payments, and the crash of the dotcom boom. Between those two things, it became clear that a lot of debts in the private sector were not going to be paid, so spending cooled and recession occurred.

    2. Gilgit

      Why you rotten... actually, that is a pretty accurate way of looking at things. The American people decided (via their votes) to go with the fairy story they were being told instead of sticking with balanced budgets. Simplistic, but not wrong.

  4. n1cholas

    Stop cutting taxes on the richest people in the solar system.

    Additionally, get rid of the Social Security Tax Cap and it's solvent forever.

  5. akapneogy

    "There's only one way to rein in the deficit: higher taxes."

    A lot of us arrived at that conclusion some forty years ago.

  6. Amil Eoj

    Our public debt problem is, as always...nonexistent.

    The CBO says this:

    "In CBO’s projections, debt as a percentage of GDP begins to rise in 2024, surpasses its historical high in 2031 (when it reaches 107 percent), and continues to climb thereafter, rising to 185 percent of GDP in 2052."

    On the evidence, our answer to the implied threat of economic disaster a quarter century hence should be: So what?

    Japan's current ratio of pubic debt to GDP is ~263%. Its inflation rate in June was 2.8%. Oh the horror.

    There are very good reasons to increase taxes on the very wealthy. Primarily because they have, as a class, accumulated far too much money in the last half century, which translates into wildly disproportionate social & political power, which sets them and their interests dangerously at odds with those of the rest of the body politic.

    But the public debt is a non-issue. It would be better to think about all the good things we could be doing with those ongoing deficits that are driving it, were they not dedicated instead to the morally and politically abhorrent purpose of further fattening the already fattest of fat cats among us.

    1. Anandakos

      Sorry, dude, but American investors have choices that Oh So Loyal Japanese investors don't or at least don't investigate. We are not Japan with its homogenous population and millennia of cultural pressure to live for the community.

    2. ProbStat

      Erm.

      I think it is an issue because it feeds into the problems that you recognize: when the funding of government is shifted from taxes on the wealthy to borrowing (which ultimately is FROM the wealthy) it is essentially a massive wealth transfer.

      Where the wealthy had previously had in essence a big liability in the form of future taxes that they would owe, now that liability disappeared and in its place they got the income-producing asset of a bunch of government bonds.

      1. Creigh Gordon

        ProbStat - given that monetary policy has no effect on inflation (as Kevin correctly argued the other day), interest rates on government liabilities - both Treasury bonds and Fed reserves - are just giving money to people because they already have money.

        Also - Amil Eoj is exactly right. The national debt as such has never harmed anyone and it never will. Inequality is the issue.

    3. ScentOfViolets

      While I agree with the first sentence

      There are very good reasons to increase taxes on the very wealthy.

      I'm not sure I'm in accord with the rest of the paragraph. Yes, the reasons you listed are good ones. But I suspect the casualty is more complicated; controlling more money didn't just happen to make this group more powerful. No, they were cut exactly and with the express intent to make the donor class more powerful. That's why I get so exasperated when people wonder why x or y or z want more money when they already have inconceivably more than they could ever spend on personal consumption: money buys power. As a corollary if they have more money and therefore more power, then everyone else has less money and therefore less power. That's it, that's the entire point.

      So fuck yeah, tax the bejesus out of these weapons grade plums who crave dominion over the rest of us and make sure they never, ever come close to having this kind of power again.

  7. Holmes

    I guess we don't say this because it's politically unpalatable but we could start cutting down the defense budget and put it on a trajectory to shrink.

    1. golack

      The Defense Department is very much a jobs program. Not for the soldiers so much, who do not get paid enough, nor for the National Guard, an even cheaper labor force. The defense-industrial complex tries to spread out every major contract out to as many congressional districts as possible, which certainly is not efficient economically, but effective politically. And there's a lot of money for people to get a slice of--procurement, maintenance, etc.... So the Defense Department is really a jobs program for lobbyists.

    2. ColBatGuano

      At a minimum, there should be a robust audit program on defense contracts with significant penalties for failure to meet time/budget goals.

  8. D_Ohrk_E1

    There is no debt issue. In comparison to Japan, our debt/GDP ratio is half theirs and we have an increasing population (and therefore a larger tax base) -- in large part thanks to immigration! --while theirs is rapidly shrinking (and therefore a smaller tax base).

    But if we were serious, we could raise taxes on the richest by 2X and we'd still be the richest country. As a bonus, we'd find out exactly who was lying when they claimed to be patriotic Americans when they attempt to offshore and hide their income and dodge taxes.

  9. jdubs

    It's never been clear that there is an actual debt problem that needs to be solved. We see a lot of solutions in need of a problem.....but identifying the actual problem always falls flat or is simply ignored.

    1. ScentOfViolets

      The actual problem? Oh, that's easy: There's a class of people who have waaay too much political power over the rest of us.

    2. Creigh Gordon

      jdubs, exactly correct. I see article after article on the debt in both the financial and mainstream media about our "debt problem" that doesn't actually say what will happen, when it will happen, or why it hasn't happened yet, it's just a reason to trot out their favorite "solution."

  10. Anandakos

    Actually, the personal part of the "Trump" part spring back next year if (as we can fervently hope) Congress is deadlocked or President Harris vetoes the extension bill. That'll be close to a third of the red zone back.

    1. middleoftheroaddem

      In thinking about this JFK signed perhaps the most substantial tax cuts in US history.

      https://en.wikipedia.org/wiki/Revenue_Act_of_1964

      My point, one is being selective in just claiming W Bush and Trump caused the US a Federal revenue problem.

      As a reminder, the Bush tax cuts ended in 2012 and the Trump tax cuts end in 2027. If Democrats extend Republican tax cuts, are Dems not also responsible?

      1. KJK

        Note that Democrats generally don't campaign on massive tax cuts for corporations and the wealthy, and Obama had a majority in congress for about 2 out of 8 years, requiring a compromise on anything enacted. The only thing politically more difficult than eliminating tax cuts is reducing SS payments.

        While historians and economists may need to sort it out, I would guess that Ronald Reagan probably holds the record for the most substantive tax cuts in modern history. The top marginal tax rate was cut from 70% to 28% by his second term (and second tax cut).

        Corporate rates went from 50% to 35%, along with vastly accelerated depreciation schedules and investment tax credits. The legislation resulted in a whole new category of financial structuring called Tax Benefit Transfers (TBT's), whereby corporations could literally sell tax benefits they could not use to financial institutions who could use them and pay a large fee. I worked for companies on both sides of this type of transaction.

        1. middleoftheroaddem

          KJK - I believe you raise fair points. Rather, I think the chart, and article, that excludes Obama in the tax cutting is misleading...

          1. ScentOfViolets

            Yes, we know you do. But that's because you don't know any political history from that era, or more likely, pretending you don't know.

            This is but one instance of many that highlights why so few give a damn what you think.

  11. ProbStat

    Good chart.

    I think the more important number, though, it the portion of GDP or of government spending that go to servicing the national debt. For the US, these are (apparently) 2.86% of GDP ( https://www.imf.org/external/datamapper/ie@FPP/ITA ) and fully 14.4% of the federal budget ( https://tradingeconomics.com/country-list/interest-payments-percent-of-revenue-wb-data.html ).

    But these figures benefit A LOT from the very low interest rates that the debt has been being financed with in the last decade or so. AND we're adding $1.5 trillion and more in debt each year, financed at higher interest rates. The latter, plus the maturing of low interest old debt and replacing it with high interest new debt, is likely to kick the federal budget's ass in another ten years or so.

    We apparently have $35 trillion in debt today ( https://www.pgpf.org/national-debt-clock ). If this is financed at an average interest rate of 3% (made up rate), that's $1.05 trillion a year in interest. If in ten years we have $50 trillion in debt and it's financed at an average interest rate of just 4%, that's $2 trillion a year in interest.

    The nominal economy would have to grow by almost 7% a year in order for that to remain the same portion of GDP. If inflation averages 3% a year -- and the Fed target is lower at 2% -- that means the real economy has to grow 4% a year to maintain the GDP portion.

    Not. Gonna. Happen.

    1. Jim B 55

      People, please read "Between Debt and the Devil". Even Uncle Milt Friedman thought that some of the deficit should be financed by money printing (i.e. increasing debt with the Federal Reserve). Too much of the necessary increase in the money supply has come from increasing private debt (mostly for housing). But yes, the total rate of the money supply should match the desired rate of growth of nominal nation income. And that will require increases in tax rates, and increases in tax rates are required anyway to combat the current toxic inequality.

  12. name99

    "There's only one way to rein in the deficit: higher taxes."

    This isn't actually true. There is the obvious rejoinder of "cut spending" but that's not my point.

    Wealth is generated by co-ordination, and it's not unreasonable to argue that the big problem in America today is that economic co-ordination has become ridiculously difficult as a result of fifty years of (often, not always) well-meaning, but badly designed legislation. Removing the worst 80% of that legislation would likely do amazing things for the economy.
    Data points like the California high speed rail project, or how much CHIPS money has not yet been spent, or the lack of housing, are well-known elements of this, but it affects all economic co-ordination, those are just the most public elements.

    Now will this change? WTF knows? Certainly Team Harris have expressed no interest in doing so. Team Trump talk a big game, but didn't do much while in power the first time (some, not much). Maybe with Chevron Deference now somewhat restricted they can do more the second time?
    Historically the pattern has been that countries do not escape from this sort of sclerosis until catastrophe. The US has (usually) been lucky enough to change course before the catastrophe (eg New Deal) but I don't think that's a law of nature...

    We have the potential to create a new world of wealth in the 21st C, similar to the difference in wealth between the 19th and 20th C, from the combination of new energy sources (wind and solar and electrification of transport), new digital tech, AI, and soon robotics. But tech doesn't just happen. A society can for internal crazy reasons refuse to embrace a tech - that's basically the story of the US vs UK. Around 1900 the US embraced electricity, internal combustion, flight. The UK stuck with steam engines, rail and ships, and, well, the rest is history.

    Will it be the US as the primary winner of new energy and AI? Or will it be China and Asia?

    1. Jim B 55

      I call rubbish. This "remove regulation and magic happens" argument has been tried over and over, and it never works. Never.
      Because (A) magic growth rates in rich economies get harder and harder over time. One because all the easy productivity growth opportunities have already been taken, and two because resources are finite and new resource bottlenecks (including skills) keep developing.
      (B) the real need to achieve rapid growth in service based economies is widespread income growth. New industries can't expand if customers can't afford their services. And we have had the opposite of widespread income growth as wealth has concentrated. Maybe a Universal Basic Income would help.

      Your belief in magic is very cute, but sorry, no!

      1. ScentOfViolets

        Oh, he made it obvious that he doesn't believe in magic a long time ago. He's just trying to get you to believe in magic.

  13. ColBatGuano

    "Removing the worst 80% of that legislation"

    Yes, I'm sure the lobbyists will only approve of removing the "bad" legislation and not things like pollution controls or labor regulations.

  14. ConradsGhost

    I'll simplify it even more - tax the rich. NOT the top 1% - lumping the burghers in with the plutocrats is a huge, massive, ignorant, stupid mistake. No - tax the obscenely rich, obscenely. Tax CEO parachute payments. Tax total wealth over $100m. Tax the shit out of hedge fund billionaires. Tax the shit out of billionaires, period. Tax the top .1% and up with steeply progressive rates, and tax the shit out of inheritances over, oh, say, $10m. Take all that unearned wealth and invest it in a sane, stable society.

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