Federal Debt

  

                                        

                                          

The last time I checked the Federal government debt was $36 Trillion. It is hard to imagine how much a trillion is, much less $36 trillion. A million is 1,000,000. A billion is a thousand million or 1,000,000,000, and a trillion is a thousand billion or 1,000,000,000,000. 

Here’s an example that might help put things in perspective. Just suppose some future President decided to confiscate the wealth of 1000 billionaires and use it to pay down the Federal debt. A thousand billion would reduce the Federal debt by one trillion, from $36 trillion to $35 trillion. So when politicians like Bernie Sanders demand that billionaires pay more in taxes than the now do, they are far from solving our financial woes.

What makes the load even more worrisome is that the annual interest equals our annual defense budget.The annual interest is so high, that it will be almost impossible to pay off the principal. We are in the position of a college grad who will never make a dent in his student loan balance, or a spendthrift who has maxed out his credit cards. 

Who has lent our government all that money? When I was in the financial services business most of the Treasury debt was held by large life insurance companies and pension funds that could only make the safest investments. Treasury bonds were backed by the full faith and credit of the US Government. A default on Treasury debt has always been unthinkable. If we defaulted on our debt, all the pension funds and other financial institutions would not be able to meet their obligations.

Many foreign nations and individuals invest in Treasuries. Even the Communists in China like to own our debt. Not just the Chinese government, but even ordinary Chinese prefer to invest in America. They can put their money in banks, establish, restaurants, and invest in all forms of real estate without fear that their property will be confiscated. 

I am not against taxing billionaires, but they already pay a higher percentage of their incomes in taxes than anyone else. The top 1% of wage earners in this country pay 40% of federal income taxes. If the government wants to get more out of them, it would be better to let them grow their businesses rather than put them out of business.

Confiscatory taxes are not the way out of our debt problem. The Trump 2017 tax cuts may have helped billionaires, but they also increased Federal revenues. High tax rates just lead to more ingenious schemes of tax avoidance. 

There are other ways to get out of our financial mess. One is to grow the economy, and the other is real structural reform that will reduce Government spending. The Federal government is the only government in our country that does not have to balance its budget every year. Liberals and Progressives object to any cuts in federal spending even the wasteful ones that DOGE has exposed. But they should realize that any federal program will inevitably increase the debt. The money is not just sitting in the Treasury waiting to be doled out. All Federal revenues are accounted for. Any additional amounts must be borrowed.

More than anything else, the interest on our debt is hurting our ability to provide needed social services.

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