In October 2022 the National Debt topped the $31 Trillion mark and continues to spin out of control. One of the biggest problems is the Debt is growing faster than our country's Gross Domestic Product (GDP). The ratio of escalating Debt to GDP has never been this high in our country’s history. A study by Penn Wharton Budget Model found that the current trajectory has the National Debt on track to rise to 225% of GDP by 2050.
Even more challenging is the cost to service the $31 Trillion in National Debt is increasing. As the Fed continues to raise interest rates to combat Inflation interest on the Debt is projected to triple in the next ten years. In May 2022 the Congressional Budget Office (CBO) projected that annual interest cost on the Debt would rise from $339 billion in 2022 to $1.2 trillion in 2032. However, with increases in interest rates by the Fed the U.S. Treasure has already exceeded the 2022 projected interest cost by over $100 Billion in Fiscal 2022.
Interest on the National Debt is currently the 4th largest Mandatory Spending item in the Federal Budget - behind Medicare/Medicaid, Social Security and Defense. CNN Business reported in November 2022 that interest cost on the National Debt was on track to exceed Defense spending by 2025 or 2026.
According to the article, Interest Costs on the National Debt Set to Reach Historic Highs in the Next Decade, published May 31, 2022, by the Peter G. Peterson Foundation, on our current path, "Interest costs on the national debt will become the largest 'program' in the federal budget surpassing Medicare and Social Security."
Medicare is projected to become insolvent in 2028, Social Security in 2034...or sooner.
Total projected U.S. unfunded liabilities currently exceed $173 Trillion.
As mentioned the National Debt crossed the $31 Trillion threshold last October.
Let me try to help you understand how large ONE Trillion is:
How long do you think it would take you to count to ONE Trillion…at one second per count? Take a guess.
The answer will astound you…almost 31,710 YEARS!
One Trillion is such a large number we really are unable to comprehend it.
Yet, a Trillion is tossed around by our government and the news sources without much reflection.
For example, the budget deficit in recent years routinely runs above one trillion; the government spent $2 trillion towards the Pandemic.
How High Would We Need to Tax the Rich to Balance the Budget (0% of GDP)?
Here are the highlights:
- If we tax every dollar above $400k = the tax rate would need to be 102%
- That’s not practical. So, what if we lower the threshold to:
- Tax every dollar above $250k = the top tax rate would be 90%
- That’s not practical either
- How about tax every dollar above $150k = the top tax rate would be 56%
- So, they kept lowering the threshold till they got to:
- Top Marginal Rate at 49% if all other rates are raised an equal amount
- In this scenario all Marginal Rates would increase a minimum of 10%
Bottom Line: Virtually all Americans, except the poorest, should expect a tax increase.
* Can We Fix the Debt Solely by Taxing the Top 1%? - CRFB.org, Aug. 6, 2015
Note: This Study is dated. However, the main takeaway is that Congress will have no choice but to expand the tax base and raise taxes across the board. We've seen high tax rates before; in the '50's and half of the '60's the top marginal tax rate was a minimum of 90% and the bottom rate was 20%.
Like a massive hurricane bearing down on the coast the warning signs are clear. A lot of people are going to get hurt by the scope of the tax increases Congress will most certainly have to implement.
The math says Marginal Tax Rates will need to increase.
In a new Report featured in a recent article reveals that the
Government Must Raise Taxes 40% Or Cut Spending 30% To Achieve Fiscal Balance: Study | The Daily Wire. We all know how much the government loves to spend money, so that leaves us with raising taxes.
David Walker, former United States Comptroller General, has had much to say about the impact of Inflation and Rising Interest Rates on the cost of servicing $31 Trillion in National Debt.
David has stated:
“Congress has waited too long to solve the problem with economic growth and spending cuts alone."
"The longer Congress waits to restructure our federal finances the higher taxes are likely to go."
"Tax rates will never be lower than what they are today."
He estimates Marginal Tax Rates will need to increase a minimum of 30% - which comports with the Report referenced above.
Why should we listen to David Walker? Aside from serving as United States Comptroller General, our nation's top Accountant, he has also served in a number of other positions for our country relating to finance, including running the Government Accountability Office (GAO) and as a Public Trustee for Social Security and Medicare. He is currently serving on the Advisory Board for the Peter G. Peterson Foundation, a nonpartisan organization dedicated to addressing America’s long-term fiscal challenges to ensure a better economic future. Earlier this year David gave an eye-opening interview in the recent retirement documentary The Baby Boomer Dilemma - Official Trailer on Vimeo
In short, NO ONE is more familiar with our country’s finances and current fiscal challenges than David Walker.
I believe most Americans are completely unaware there is a financial tsunami headed our way, and the majority will wait until it’s too late to do anything.
This is not a new problem. David Walker has been urging America to wake up since his days as United States Comptroller General. Check out this eye-opening interview