Will Prosperous American Economy Be Saved Amid Vast Debt Fear?

 

Short Answer

Yes, in the immediate future, the United States economy will be saved.  The National Debt Ceiling will be raised because we can not afford for it not to be raised.  In our entire history, our country has never not been able to pay the debts owed.  Our ability to keep paying our debts in the not-too-distant future is in doubt unless changes are made.

The Problem

The United States Of America is $31 trillion dollars in debt.  The primary contributors to the national debt include government spending exceeding revenue, economic downturns, wars, tax policies, and financial crises.

Deficits are often financed by borrowing money through the issuance of government bonds and treasury securities. Over time, these deficits accumulate, contributing to the national debt.

The United States has a debt ceiling which is the legal limit on government borrowing.  It was first established in 1917 as a way to control government borrowing during World War I.  The debt ceiling was meant to be a temporary measure but it has been raised 78 times since 1960.

Debt is an unpopular topic among United States politicians.  Nobody wants a political record that includes signing off on making the national debt larger.  The debt limit often becomes a battleground as lawmakers attach unrelated priorities to must-bass bills.

Temporary Solution

Raising the debt ceiling is a quick temporary fix that the current congress is having trouble coming to an agreement on.  Political agendas are getting in the way of the United States economy.

Progress is being made.  President Joe Biden and House Republicans have reached an agreement in principle to raise the debt ceiling for two years.  Concessions were made on both sides and still has to pass in Congress.

The unofficial agreement includes:

• Capping non-defense (non-military) spending

• Protecting veteran’s medical care

• Expanding work requirements for certain adults with food stamps

• Clawback unspent Covid-19 relief funds

• Cutting IRS funding

• Restarting student loan repayments

Whatever the final agreement, and one will be made, it is only a temporary solution to a much larger problem.

Eliminate The Problem

Reducing the U.S. government's debt is a challenging endeavor requiring long-term efforts. Besides conventional measures like tax increases and spending cuts, the government can explore alternative and contentious approaches. Here are some potential strategies.

Controversial And Unorthodox

Opening The Borders

Opening the borders as a strategy for debt reduction holds potential but raises safety concerns and other challenges. Immigrants have shown a propensity for higher rates of business creation, offering the potential to accelerate economic growth and generate crucial tax revenue. Additionally, demand for housing and consumer goods would contribute to debt repayment. 

However, implementing such a strategy requires addressing the legitimate concerns surrounding security and preventing the entry of criminals or individuals intending harm to the American people. Balancing these considerations is crucial in exploring the viability of opening borders as a means to alleviate the national debt.

Raising The Retirement Age

Delaying Social Security retirement benefits to the 70s reduces national debt by boosting contributions and reducing program reliance.  Advancements in healthcare and longer lifespans suggest raising the Social Security retirement age beyond 67.  Advancements were why it was raised from 65 to 67 in the past.

Implement A National Sales Tax

Implementing a model similar to Canada’s 5% national sales tax could be a step in the right direction.  Theoretically, it would promote consumer consumption which some economists prefer over income or investment taxes.

Revamp The Tax Code

Talks of tax code revamp intensified during the 2011 debt ceiling standoff. "The gang of six" senators neared a deficit-reduction deal, cutting spending and closing tax loopholes to save $3.7 trillion over a decade. Unfortunately, negotiations collapsed.  The government should revisit this possibility once the debt ceiling has been raised.

Reduce Tax Subsidies For Employment-Based Health Insurance

The federal tax system favors employer-based health insurance, excluding premiums and contributions from income and payroll taxes. Health spending accounts like FSAs, HRAs, and HSAs also receive tax exemptions. This encourages firms to offer comprehensive benefits, workers to enroll in employer-based plans, and lowers cost sharing. 

The tax treatment of employment-based health benefits is projected to reach $641 billion in 2032. Limiting the tax exclusion could increase tax revenue and reduce deficits while maintaining preferential treatment. Alternative approaches, like a flat refundable tax credit, could incentivize insurance uptake without favoring higher-income individuals or expensive plans.

Conclusion

It is possible to eliminate the national debt.  More ideas are outlined in the Options for Reducing the Deficit, 2023 to 2032 Volume 1: Larger Reductions and Volume 2: Smaller Reductions.  These volumes were put out by the Congressional Budget Office.  The volumes make us seem so close to reducing or eliminating our debt, yet we are so very far apart.

It would take the cooperation of all our politicians to make this goal a reality.  Hard choices would have to be made and the politicians would have to take the politics out of negotiations.  I hope and pray that someday this will happen.

Resources:

Nine questions you may have about the debt ceiling : NPR

Here's what's in the debt ceiling deal | CNN Politics

Ways The United States Can Get Out of Debt (investopedia.com)