An electronic billboard and a poster display the U.S. National...

An electronic billboard and a poster display the U.S. National debt on Dec. 3, 2024, in Washington. Credit: Getty Images for the Peter G. P/Jemal Countess

This guest essay reflects the views of Robert S. Goldberg, professor of finance at Adelphi University.

Ironically, our nation of such great wealth and talent manages its finances in a manner that would bankrupt most families and businesses.

As a result, our national debt is out of control. We can address that, but it requires substantial sacrifice from all of us in the form of a balanced budget and a 10% wealth tax on every American taxpayer.

Here's how we got to this point:

Before the 1930s, the government generally kept a balanced budget, with exceptions for war debt that was quickly repaid. Debt rose during the Depression and World War II, reaching a peak of 100% of GDP before descending and stabilizing in the 30% range in the 1970s. While the debt ratio was above prewar levels, at least the borrowed funds were used for investments such as buildings, military equipment, and R&D. The country was living within its means and using debt to invest to benefit future generations — exactly how responsible families and businesses operate: Save a little for the uncertain future and borrow responsibly to build a better tomorrow.

Unfortunately, we now borrow recklessly to finance current consumption, with annual increases in debt far exceeding yearly investment. We spend roughly $7 trillion annually compared to $5 trillion in taxes, and federal debt now exceeds $35 trillion, representing more than 100% of GDP. Over the past 50 years, the government borrowed $10 trillion for investment and $25 trillion to fund current consumption, of which nearly $10 trillion has occurred over the last 10 years.

The response to the pandemic worsened an already bad situation. Rather than targeted assistance, carefully borrowed or taxed from those with resources, the government handed out large sums of cash, essentially printed, unleashing the over-20% cumulative inflation we've seen since the pandemic.

We can't grow our way out of this fiscal problem. Interest on our national debt is $1 trillion a year and will continue to increase with further deficits. Refinancing maturing debt from the prior low-rate era will aggravate the situation. Mandatory payments for programs such as Medicare and Social Security represent another $4 trillion, and nearly $1 trillion is spent on defense, leaving roughly $1 trillion in other discretionary spending.

Elon Musk’s government-slimming effort may cut wasteful spending. Still, tough decisions need to be made regarding spending on mandatory programs and the likely need to raise taxes to balance the budget, regardless of the spending level.

Even with a balanced budget, the country must reduce its debt, unburdening future generations from dealing with our profligacy. Households currently have over $150 trillion of wealth, consisting of investments in securities, houses, and private businesses. This number is four times as large as 25 years ago, with two-thirds of the wealth held by 10% of the population. Half the population owns less than 5% of the country’s wealth. Median income has only doubled over this period, mostly reflecting inflation.

The country should undertake a one-time 10% wealth contribution from everyone, enough to raise $15 trillion, and use the funds to retire half the outstanding national debt. This would bring debt down to a reasonable 50% of GDP and cut interest expenses by over $500 billion. The tax on real estate and private investments and businesses can be deferred until the assets are ultimately sold, though interim cash flows would be subject to the tax.

The combination of budget balancing and debt extinguishment will return us to a sustainable fiscal path that will benefit ourselves and future generations.

This guest essay reflects the views of Robert S. Goldberg, professor of finance at Adelphi University.

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