To trim US debt, spread the tax pain. We must all feel it.

Published June 6, 2024

By Jim Martin

Note: The following opinion piece was first published in the Raleigh News and Observer June 5, 2024

Food and gas prices are too high. So are health care costs, college tuition, rental housing and more. The national debt is way too high, and soaring higher.

Still, consumer spending is solid, and the Federal Reserve is doing its best to moderate inflation somewhat. Industrial growth is slow, however, and strong demand for limited supply is a classic formula for inflation.

Democrats want to raise taxes (but not on 90% of us) to put more money in some pockets. Republicans would cut taxes (again) to leave more money in some pockets, and cut spending (but where?).

Combined, it’s like a baby’s alimentary canal: unlimited appetite on one end, and no sense of responsibility on the other.

For decades, it was reassuring that our national debt only once (during World War II) had reached the level of the gross domestic product or GDP, which is the value of goods and services produced in the United States in a year. Today we’ve surged past our $28.4 trillion GDP with a federal debt of $34.6 trillion, adding another trillion a year.

That’s like $101,000 owed by each of us on top of our consumer debt — home mortgages, car loans, credit cards, which average about $104,000 apiece.

Count state and local government along with corporate and personal debt, and we’re sitting on a total U.S. debt of $100 trillion, which includes unfunded but hard-to-touch liabilities like Social Security and Medicare. Excessive federal debt raises interest rates for all.

Neither political party has the answer. It’ll take an old-fashioned compromise, with more taxes and less spending. Where is the candidate asking us to accept the pain it will cause?

Where could Congress make serious cuts? Defense spending, at $805 billion in 2023, was 3.0% of GDP. Interest on the debt was $659 billion (2.4%). All other “discretionary” spending was just 1.0% of GDP. That’s $1.7 trillion (6.4% of GDP) for all discretionary spending combined in fiscal 2023.

Yet, those are only one-third of total federal spending. By far, the biggest expense of them all is $1.30 trillion a year for Social Security benefits, plus another combined $1.46 trillion for Medicare and Medicaid. All other “entitlements” total just under a half trillion a year.

The annual battle over the debt ceiling isn’t the answer. If the Fed can’t borrow to finance more debt, they’ll just print more money to pay obligations, making inflation worse. The only solution is to stop spending more than revenues.

Some would put all the burden on the richest 10% of earners, but they already pay 76% of federal income taxes now. “See that fellow behind that tree; go tax him, but don’t tax me.”

It’s quickly getting worse. Interest payment on the national debt is double what it was in 2015, and rising fast. When will it become too costly to borrow more for the next crisis? What then? With chronic debt levels far above GDP, we may already be there.

Time may be running out. Social Security is forecast to run out of reserves in 2033, with only enough revenue to pay about $80 of every $100 retirees get now. Three years later, forecasts say Medicare reserves will be spent and no longer able to sustain today’s levels of healthcare, leaving enough revenue for $89 of today’s $100. Those reserves, by the way, are invested in our national debt because nothing is considered to be safer. What could go wrong?

There is no easy way to escape our recent rash of generosity to ourselves. We can’t reduce the cumulative debt until we first stop deficit spending. That means widespread spending cuts and tax increases for all. That will spread the pain, but so would a default or extreme inflation.

There’s an old Cockney catch phrase: “You pays your money and you takes your choices.” We better start soon.

Jim Martin, a Republican, was N.C. governor from 1985-93. He is a regular contributor to our pages.