The Deficit-to-GDP ratio and Debt-to-GDP ratio get even uglier.
By Wolf Richter for WOLF STREET.
To what extent do interest payments that the US government pays on its ballooning and gigantic debt eat up tax receipts? That is a key question about the US fiscal mess.
Sharply higher tax receipts in Q4 and slowing growth of interest payments in Q4 cause this ratio of “interest payments to tax receipts” to dip to 35.6% in Q4 from Q3. But year-over-year, it worsened by 1 percentage point, based on a measure of tax receipts released today by the Bureau of Economic Analysis as part of its second revision of Q4 GDP.
Q3 had been the worst since 1996, when this ratio was on the downtrend from the scary times in the 1980s. The magnitude and speed of this spike is unprecedented in modern US history:
Interest payments by the government on its $36.2 trillion in Treasury debt rose by 9.1% year-over-year to $281 billion in Q4 (red in the chart below).
The increases slowed in Q4 after the spike in 2021 through 2024, which was brought about by the spike of the debt, and the higher interest rates on this spiking debt. The increases are now slowing because interest rates for newly issued short-term government debt have fallen.
Tax receipts in Q4 jumped by $44 billion from Q3, and by $50 billion year-over-year, to $790 billion (blue).
Tax receipts can spike and plunge with capital-gains taxes. Surging financial markets trigger a tsunami of capital gains, and therefore capital gains taxes to be paid quarterly and the following year by April 15. The year 2024 was a hot year for markets, triggering lots of capital-gains taxes, some of which were paid quarterly as part of the estimated taxes, and some of it will be paid by by April 15. Bubbly financial markets boost tax receipts.
Tax receipts increase more steadily through growing employment and wages, with more workers working, and with their wages rising. Growing profits by businesses also contribute to the growth in tax receipts. Inflation is a big factor in driving up tax receipts by inflating taxable incomes and taxable profits.
This measure of tax receipts from the BEA tracks the tax receipts that are available to pay for general budget expenditures, such as defense spending, interest payments, etc. Excluded are receipts that are not available to pay for general budget expenditures, primarily Social Security and disability contributions that go into Trust Funds, out of which the benefits are then paid to the beneficiaries of the systems.
Interest payments have spike since 2022 for two reasons.
The debt has ballooned year after year, for many years, including by $2.2 trillion in 2024 despite 2.8% annual real GDP growth. That strong economic growth may not get repeated in 2025. At the end of Q4, the debt hit the debt ceiling of $36.2 trillion.
Short-term interest rates have fallen. The Fed cut its policy rates by 100 basis points in the fall of 2024.
Interest rates on short-term Treasury bills (terms of 1 month to 1 year) started falling in mid-2024 in anticipation of rate cuts. The $6.4 trillion in T-bills are maturing and are getting refinanced all the time in huge auctions, and the lower-interest rate T-bills replaced higher interest-rate T-bills in quick succession as the interest on T-bills declined.
In terms of Treasury notes and bonds (2 years to 30 years), the picture is much more complex. After the rate cuts began, their yields began to surge again. For example, the 10-year yield started 2024 at 3.95% and ended the year 2024 at 4.58%, with some big movements in between. Many of the newly issued notes and bonds were sold at higher interest rates than the notes and bonds they replaced. But they turn over much more slowly than T-bills.
These dynamics form the average interest rate that the government pays on its total outstanding debt. That average interest doubled from 2022 through 2024 with higher T-bill rates, and went as high as 3.35% in June 2024. Over the past three months, it has stabilized at 3.28%:
The ugly Debt-to-GDP ratio: Total debt as percent of GDP rose to 121.9% in Q4, the highest since Q2 2021, based on the revised estimate of Q4 “current dollar” GDP released by the BEA today.
The spike of the ratio in Q2 2020 was the result of the collapse of GDP during the lockdown and spike of the national debt to pay for the stimulus measures. As GDP recovered faster than the debt grew, the ratio came down through Q1 2023. But then, all heck re-broke loose.
As sort of a tragic-comic relief, here is the Debt-to-GDP chart going back to 1966. Note that inflation cancels out in the Debt-to-GDP ratio, as it is in both the numerator and the denominator: total debt not adjusted for inflation divided by “current dollar” GDP, which is also not adjusted for inflation:
The ugly Deficit-to-GDP ratio worsened to 6.3% in 2024, despite the solid growth of GDP. A deficit of 3% of GPD on average is considered close to “sustainable,” at best.
Bringing the annual deficit back to 3% of GDP – on average over the years, including recessions – will require major policy fixes on spending and taxes. This is of course precisely what Congress has been unwilling and unable to do. And it will require solid economic growth. Not holding my breath.
The annual “deficit” is the amount that the government spends more in that year than it takes in from taxes and fees that year. The difference is what it has to borrow that year. The borrowed difference then adds to the “debt,” which is the total accumulated amount that the government has borrowed since forever.
The Interest-Payments-to-GDP ratio shows the burden of the interest payments expressed in terms of the overall economy. The chart looks similar in shape to the first chart, “Interest Payments as Percent of Tax Receipts” because tax receipts track GDP fairly closely over the years.
The US debt growth has for years been called “unsustainable” because over the long term, this kind of debt growth cannot be sustained. Something will happen to address it. If policy makers don’t make it happen, inflation will.
The US, by controlling its own currency, cannot default on its debt because it can always print more money to service that debt. But printing more money to service an out-of-control debt could lead to a spiral of inflation that would wreak serious havoc on the economy and lead to years of economic pain.
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how could tarrif rates affect this outlook?
so based on the last few years, additional tariffs may help a tiny bit with this growing massive problem, but are unlikely to alleviate it by themselves. Seems like the last 2 paragraphs of the article addressed this.
Yes, this stuff takes years of planning and building. But eventually you see the effects. Trumps first rounds of tariffs already moved the needle. Three years after the tariffs were implemented at the end of 2018, and interrupted by covid and supply chain chaos, we have a factory construction boom:
We shall see come Monday, the eve of the US’s implementation of what the administration claims are simply a mirror image of how American products are treated in the countries with the largest trade deficits with the US. Not surprising, really.
Nor is the wailing as one’s own ox is gored.
Whatever you think about President Trump, Elon Musk has courageously sought to lower government spending. This, of course, is wildly unpopular because no one want their ox gored. President Trump has stated that he will balance the budget. Is there any other way to correct this problem?
I’d argue he created a distraction by noisily targeting tiny sources of spending based on political valence rather than the efficiency of the spending.
Courageous would be something like a Perot infomercial with the outcome that we need to increase the threshold for social security taxation of wages to 250k and lower the top SS bend point.
you do that, and you’re eliminating any pretense that social security is a retirement program rather than a welfare program.
Courageous would be repealing the Trillions spending in the IRA and cutting Medicaid back to what it was meant to be circa 2008.
Courageous would be admitting that the 8 years of ZIRP under Obama and the follow on low interest rates that Social Security received on its trust fund debt destroyed over $1 trillion in income.
That added income would have kept it solvent protected it’s payees from any problems in the future.
The Social Security trust fund needs to get rid of its low yielding securities so that it’s income stream increases
Exactly. The profits the Fed paid to the treasury should go to the Social Security Trust Fund.
The guy bankrupt a casino so I wouldn’t expect any miracles.
Ah.not so sure….if I not mistaken that was an independent casino paying royalties to Trump , to use his name. I’m referring to casino in Atlantic City.
Candyman. Yahoo Finance has this to say: “In the glittering world of Atlantic City’s casinos during the 1980s, Donald Trump emerged as a major player. … Trump’s ambition led him to acquire THREE of the city’s major casinos, marking him as a significant presence in the thriving industry.”
He did not become a “minority owner” until 2004.
Trump is an expert in bankruptcy. I am looking forward to see how the gold in Fort Knox will feature in his next caper.
You are mistaken.
Trump was initially the owner, chairman and eventually CEO of Trump Hotels & Casinos in the late 90s. He loaded up the company with debt, bought multiple properties in Atlantic City and elsewhere and ran the business into the ground.
Multiple debt defaults and restructures before finally going bankrupt. As part of the bankruptcy he agreed to step away from running the company and still use the Trump name. There were more defaults and bankruptcies later as the company was never going to get out from under the debt Trump took on, even restructured.
I remember it well, it is to this day still my most successful short equity position. I rode the stock down well under $1, unfortunately the brokerage closed out the position when the stock was de-listed from the main exchange
Exactly
Unfortunately, he’s not going about it in a sustainable way. It needs to be done by measurement, policy and Congressional action. Otherwise, once he gets bored, it just grows back quickly.
Cutting expenses isn’t bad, it’s how you do it. Just like losing weight doesn’t mean, if you’re smart, losing muscle and bone.
He did the latter at Twitter and, while it’s still alive, isn’t believed to be profitable.
Musk is driven and he’s smart and I respect him for the things he’s accomplished but he’s become as narcissistic as his boss. He listens to nobody’s opinion but his own and, smart he may be, but he doesn’t know everything.
X is profitable and is now worth more than what Musk bought Twitter for.
Right. Hey, I have this bridge I’m trying to sell, you seem like you might be interested?
Well, this comment didn’t age well after today…
…’smart’, or merely ‘clever’? An age-old question…
may we all find a better day.
Courageous? Bullshit. Or more like chickenshit. Until they figure out how to reduce the defense budget by more than a rounding error, you’d have to be smoking something to actually think this.
👍👍
If the entire Defense budget was cut (and we magically didn’t get taken over by China) we would STILL have over $1 TRILLION deficit every year, growing the debt quickly over $40 Trillion anyway.
That’s not the point. Every part of government will have to be cut to get the deficit and debt situation under control, and defense needs to take a hit also. Perhaps the Navy shouldn’t be allowed to spend $13 billion per super carrier and $8 billion per Virginia-class submarine? And why are we spending so much per F-35 fighter when they’re talking about starting an F-47 fighter program? Difficult choices have to be made, and the military cannot be exempt from that!
A bipartisan commission (similar to the one Obama comissioned) to study this and provide actionable recommendations is the only thing that will work. Both sides are going to have to budge off their sacred beliefs, in support of the health and continued existence of our economy as we know it. Unfortunately we are more polarized than ever and this has zero percent chance of happening.
Craig, our problem is those commissions, Reagan had one too, feed the rich and starve the rest. Reagan’s Bi-partisan commission brought on higher age requirements and limited benefits for retirement.
Do run or own shares in a catering concern?
Being a little arsey above… but we’ve have plenty of previous recommendations that have been ignored in a happy bi-partizan matter. Adding yet another would amount to busy work.
CBO did this recently under Biden and found $500B that could be cut, and Trump’s team has identified a few hundred billion more.
DOGE thinks it can find $1000B ($1T). Let them do their job.
The best thing we can do is ensure that unelected federal judges quit harming the effort. Seriously, look at the charts in the article.
Is there anyone as naive as someone who believes in DOGE as a way to cut spending?
DOGE is a marketing campaign directed at the gullible.
Doge couldn’t find their own behind with a map and a flashlight. Supposed computer geniuses who can’t even figure out how to read a government database.
Oh, sorry, I mean, yes of course doge will save us more money than actually exists in those agencies.
Yes, there is another way. Note the Debt to GDP ratio chart. The curve was looking good until 1980 with the advent of the nonsense known as Reaganomics, the curve turned upward and pretty much never looked back. I say nonsense as an idea was put forth and enacted taht if we just reduced taxes, things would be better. (the Laffer curve).
How to fix? Bring back the tax tables that existed during the time after WW2 (also ending in 1980s) when our debt increased dramatically due to the war. We had a pretty good economy post war and we will again if we simply collect the money to pay our bills.
The post war economy couldn’t help but be spectacular as most of the western world was destroyed and rebuilding. That’s when the US because the manufacturing center of the world, until it was slowly given away.
Cory,
Agreed.
Louie completely ignored a rather massive factor behind the halcyon economic days of the 1950s and 60s (days utterly vilified at the time by the Left).
The Luxury Left of the 1950’s and 1960’s sneered at the “ticky-tack” standardized housing of the time…only to live their political lives in a way that essentially guaranteed their children and grandchildren would have much worse financial lives – and not be able to afford even the “ticky-tack” housing.
Call them the “Worst Generation”
yeah, 90% marginal tax rates. that’s the ticket!
Nonsense. Debt-to-GDP skyrocketed in the 80’s due to soaring interest rates from the late 70’s stagflation (and FED failure, as it always does). Winning the Cold War was worth the expanded Defense spending, and the growth of the middle class was more than well worth it.
Raising taxes now will plunge us into a long recession and perhaps a depression, and will NOT address the $2T deficit created by the prior administration.
The problem was on the spending side.
Apparently you didn’t pay enough attention to what came next.
When the Reagan/Bush team turned over the nation to the Baby Boomer Presidents in January 1993… the top Tax Rate was 31%, the Reagan defense buildup had eliminated the Communist threat to the nation (which thus had generated a “Peace Dividend” that could easily have reduced the national deficits), a depleted Social Security Trust Fund was restored to a sound basis for the next 50-plus years, and they left a National Debt of merely 4.1 trillion dollars.
From the IMMEDIATE START of the Baby Boomer presidencies the top tax rate has bounced between 39.6% and 35% (averaging 37.5%) … while the national debt has grown to $36.7 trillion. As a cake topper the Social Security Trust Fund is a mere nine years from being depleted again.
Obviously a nation can set tax rates too high or too low (as the Laffer Curve makes obvious)… but the problems we face now as a nation are not from taxing too little compared to Reagan and Bush (37.5-39.6% is CONSIDERABLY higher than 28-31%) but from WILDLY profligate spending in the 33 years since they turned over the reins of government.
MOREOVER that enhanced level of government spending was largely wasted. In the 70’s, 80’s, and 90’s it was pretty rare for the U.S. GDP growth to be below 3 percent. But in the first 25 years of this century you have to go all the way back to 2004-2005 to get not just back-to-back GDP growth above 3%… but to get ANY growth above that level (only exception being the COVID bounceback year of 2021). How the hell our government could spend $30 trillion more than it took in over the course of a quarter century and not goose GDP growth better than that is a mystery for the ages…. but we know one thing for certain… it has nothing to do with Reaganomics (from the 1980s) or the Laffer Curve (of the 1970s).
How can you even write that narrative without acknowledging two major facts:
1. Reagan was forced to raise taxes in 1986 because he recognized debt was rising too fast and
2. The one and only federal surplus was from 1997 to 2001, i.e. 4 years after your first Baby Boomer President took over and basically the entirety of Clinton’s second term. This also marks the only time since 1970 when the debt dropped significantly.
As a casual Google search will tell you, the increase in the debt doesn’t date from 1993 as you lie about it, but from 15 years later, when the Great Recession hit in 2008.
Ignorant or lying? Only you know.
Indeed, you also had to conveniently ignore the fact that the debt doubled during the Reagan/Bush I years, dropped during the Clinton years and was flat for most of Bush I at levels that were quite reasonable, before finally exploding during the financial crisis.
My deep psychological analysis of Musk’s motives is that he wants to be the modern equivalent of a Pharaoh-King. Building a pyramid on Mars, where he’d be buried would worthy of his greatness and a fitting recognition to his contribution to humanity. To do so, every penny not spent on this goal would be a penny wasted. His mission is clear. Of course, I could be very wrong and he may not actually have our best interests in mind.
An unelected African immigrant illegally dismantling the United States federal government while giving his own businesses handouts is what Fox State Media is convincing you is courage these days? lol!!
While they increase the debt ceiling by 4.5 Trillion to give tax cuts to billionaires? You must be on the same drugs as Elon!
where do you see a proposal to give tax cuts to billionaires? all the talk about taxing billionaires from both parties is just that, talk.
most of the higher tax rates affect the upper middle class only.
Well, the 2017 Trump tax cuts (the ones they’re talking about renewing) gave the top tax bracket a tax break of about 7%. So the proposal that will likely be on the table will be to keep that 7% tax break we gave to billionaires 8 years ago.
There was also a major corporate tax break in the TCJA, though most of the reductions in corporate taxes happened in the Bush tax cuts.
Wake up, the spending bill is for tax cuts for the wealthy. Let’s cut food programs so Bezos can save a buck. But if they do pass it, at least that’s the legal way to do it. Not what your drug-addled immigrant African boy is doing. I now see he’s back to illegally buying votes again, this time to remove a Wisconsin judge who disagrees with handing over the democracy to a dictator.
numbers, see this is what I mean about stupid rhetoric that doesn’t line up with reality. the top bracket was lowered from 39.6% to 37%. that’s 2.6%, not 7%. and the top bracket, in 2025, the top bracket for a married couple starts at $751k. yes, a lot of money, but not “billionaires.”
most billionaires don’t get w2 income like this, so the increase in the top bracket makes very little difference to them.
Franz,
Perhaps you should check your math and your understanding before you start slinging insults.
If you make a lot of money, your tax rate (except for deductions) begins to approximate the top marginal rate. 37/39.6 = 93.4% which is a 6.6% cut in the amount of taxes that they pay. Someone with an income of $10 million will pay $3.65 million dollars instead of $3.91 million dollars. So they got a tax cut of $260,000, which is 6.6% of the nearly $4 million they were previously paying.
If you are making $751k and the top marginal rate is decreased, guess how big your tax cut is? It’s 0. If you are making $1.5 million and the top marginal rate is decreased, guess how big your tax cut is? It’s half of the marginal rate cut (or about 3.3%). If you are making $100 billion and the top marginal rate is decreased, guess how big your tax cut is? Nearly exactly 6.6%.
Finally, you can claim that $751,000 is not very much, but it’s 10 times the national median household income and puts you in the top 2% of households nationwide.
Lol Franz you got schooled there
The sad thing is I know you will learn nothing and go on saying dumb stuff and believing you’re right even though you are functionally economically illiterate
Do not argue numbers with a dude named numbers.
Phil, you are correct.
Franz is obviously under the influence of the kool-aid.
Dear Numbers,
Now can you do the same calcs for a low income and middle income family each with one or kids and no itemized deductions?
Please factor in the changes in earned income credit, any additional child credits, and the change in the increase in the personal deduction.
While people have envy about million dollar income people getting a big tax break in absolute dollar terms those tax changes mentioned above were a big deal to those low and middle income earners in terms of improvement in keeping more of their income. It helped them out quite a bit.
Furthermore the limit on SALT deductions really hit those in the upper income brackets as well as high taxing local and state governments.
That was a big deal in terms of getting rid of something that should have never been allowed.
I also think that people should be allowed to deduct total amount social security taxes paid from from their income to get a starting taxable income.
Now people pay tax on tax.
what “schooling?” he referenced the top tax bracket, and implied he was referring to the marginal rate dropping by 7%. if he meant the total, then, yes, but i believe he was being intentionally misleading.
in any case, talking about billionaires and then imposing higher taxes on people making $751k is dishonest.
“illegally dismantling the United States federal government while giving his own businesses handouts”
Is it the “illegal” part or the “dismantling” part that you dont like. Legality is a very flexible and exceedingly plastic term. A close look at the New Deal era will give you a great appreciation of how “legal” becomes an almost meaningless term. Essentially the phenomenon of Radio and a great radio voice created an all new understanding of “law” and “legality” – reading about the Schechter affair and the NRA makes me feel queasy about all talk of legality – and the hero worship many new dealers exercised toward Stalin and Mussolini and to a lesser extent Hitler and the “modernity” represented in socialism and economic planning.
The “dismantling” part seems a bit hyperbolic. I wish it were so – the dismantling that is. God in his wisdom, gave the Jews directions about sabbath years and Jubilee years – if there is a dismantling, think of it more as a Jubilee – a chance for renewal and a restart of the accretion of the necessary injustice we call government.
“Elon Musk has courageously sought to lower government spending. This, of course, is wildly unpopular because no one want their ox gored”
I would say “obnoxiously” and “antagonistically” sought to lower govt spending. It’s as if he and his crew are intentionally trying to piss off as many on the left as possible (I’m sure plenty on the right are pissed, but they’re too chicken to say anything).
Plenty on the left agree with spending cuts. Of course, WHAT to cut is the giant point of contention, and why bipartisan committees, etc., simply cannot achieve this. They’ll be deadlocked.
So how to do it? DOGE needs to stop being so antagonistic, stop gaslighting, exaggerating and b.s.’ing about the alleged “cuts” and instead present the real savings. Maybe do it in chunks and hand it to congress to vote on each chunk. Those forced votes will likely split along party lines, which means they’ll pass.
the vast majority of waste/fraud/abuse, 97% or more, goes to Left Wing recipients. So even if all spending going to causes on the right were to be cut, it wouldn’t make a dent.
The uneducated need to stop being antagonistic to reduction of waste from the federal govt.
Absurd claim. We could argue that the federal government exists solely to transfer funds from wealthy blue states to poor red states. The entire US South is DEI masquerading as geography. Rural red state voters are in for a bad shock when they realize Medicaid is the only reason that there are any hospitals whatsoever in their areas.
You are right about that claim being remarkably stupid.
That having been said, the average Critical Access Hospital gets 10-ish percent of revenue from Medicaid. Medicare is much higher.
Do you think making up numbers to support your ignorant biases some makes you sound credible? I think it is hilarious.
What makes your post even more funny is you call others uneducated when you are clearly not even able to accurately describe the views of your opponents, nor accurately describe reality.
Get better sources of information. Seriously.
phil, the “blue states subsidize the rest states” is a tired, misleading trope.
Living in a blue state that sends far more federal tax dollars away than we receive back, I’m well aware that it’s a fact of life.
Medicaid cuts will indeed have an outsized impact on rural health care providers… Some 20% of adults and 40% of children living in rural areas receive Medicaid benefits.
If you’re interested, examine federal funds as a proportion of state funding on a case by case basis… The states with the most disproportionate federal dependency are a who’s who of basket case red states.
Simply reducing real, per capita government spending to pre covid levels would balance the budget in short (2-3 years max) order.
Correct, except the excess isn’t where everyone thinks it is. The extra post-COVID spending is entirely due to an aging population, increasing SS and Medicare costs.
LOL so reduce Medicare/Medicaid from $1.7T to $1.2T, and Social Security from $1.5T to $1.0T.
I’ll let you tell 68 million Americans that their SS and Medicare will be cut by a third. And who gets to decide which 28 million of current Medicaid recipients get that benefit cut completely. Oh and what magic wand will you wave to simply make $700 BILLION in annual interest payments simply evaporate?
Wanna know how this gets accomplished? DOGE cuts $1T in waste, congress does their job to fix SS/Medicare/Medicaid and economically-stifling taxes, we add a few hundred billion in tariff receipts, we remove millions of illegals consuming hundreds of billions in welfare, we fully implement Trump economic policy, and the FED doesn’t ruin everything, again.
And everyone gets a pony!
“we remove millions of illegals consuming hundreds of billions in welfare”
That statement makes it clear that you use sources of information that take advantage of your ignorance and biases to make you look foolish.
In reality, illegal immigrants end up paying more into the welfare state than they ever end up collecting. One of the main reasons is that it requires documentation to collect welfare.
Why do you regularly use information sources that make you look silly?
How many times in these comment sections do I have to tell you that there is no $1 trillion in waste fraud and abuse because there isn’t $1 trillion period in anything that isn’t Social Security, Medicare and Medicaid? Because non defense discretionary spending, i.e. everything the government does that is not defense spending, SS, or Medicaid/Medicare doesn’t even total $1 trillion?
Musk couldn’t find it in Social Security so he had to make up lies about it and then try to break the agency.
Dear JimL,
You are so wrong about the cost of illegal immigration that it isn’t funny.
No doubt that you support unlimited illegal immigration as you think it adds benefits to the US.
The cost to the US for illegal immigration is huge and includes medical care, schooling, welfare benefits paid by cities, states, and the Federal government as well as costs related to law enforcement such as border protection, police, judicial costs, prisons, and of course other costs associated with crime such as injuries and deaths along with drug trafficking and it’s related costs.
And then add in additional costs as a result of increased demand causing prices to increase.
Now please add up all those costs and tell us how that offsets a few measly billion in taxes that they might pay.
This is neither thoughtful nor constructive.
Ignoring SS and Medicare …
Defense Budget + Veteran Affair -> 1/4 of all the tax revenue (1.2Trillions).
Have some courage and slash that by 50%.
there are only a few others ways, none that are realistic:
-cut Medicare
-cut Medicaid
-cut Social Security
-cut Defense spending
Which of those did you want to tackle first?
Social Security is self-funded and is not part of the general budget and needs to be taken off that list. It ran a surplus for decades, that it accumulated in its $2.5 trillion Trust Fund, and just over the past three years ran a relatively small deficit that it covers from its Trust Fund.
https://wolfstreet.com/2024/11/04/social-security-update-fiscal-2024-trust-fund-income-outgo-and-deficit/
That $2.5 trillion social security “trust fund” has already been spent (but NOT on social security) and exists in the form of intragovernmental debt.
Cut SS expenses to make it live on its own current tax revenue (and not the government’s own IOUs), and another chunk of the national debt is eliminated.
“$2.5 trillion social security “trust fund” has already been spent…”
… is stupid-ass ignorant bullshit spread by idiots for idiots. That $2.5 trillion is invested in interest-paying Treasury securities that are just as good as the interest-paying Treasury securities I hold. Adios.
The constitutional authority over all these programs resides with the Congress. Which will eventually sue for their rights back from a President that is walking a tightrope as his agenda will be ruled unconstitutional in due course.
Really?
USAID has been shut down legally.
Maybe you should read about how his “courageous” cuts have killed drilling for oil and gas on the Native American lands in the west. He has the attention span and intelligence of a gnat.
Follow DOGE daily.
Not sure how much the dept. will save
us taxpayers.
But it has been a Fing eye opener in the
vast amount of waste.
If you think what Musk is doing is at all helpful or wise, debating with facts or rhetoric seems non-productive for either of us.
I just can hope you’re long on your idol with heavy investment TSLA. Please have the courage of your convictions, please ignore contrary facts as they only produce anxiety, and buy, buy, buy. Please ignore those silly “market fluctuations”. They’re all a conspiracy! Stay true to fidelity to your Dear Leaders. And yes, please buy crypto as well. Please and thank you. Show how dumb the critics are when you brag at your riches.
Not sure what the point of your prose was, like a musket at 200 yards. Then I started to recall those emotions during one life stretch.
I do remember screaming No! No! the night that the USA attacked Iraq. And now, we are cutting the benefits for veterans.
Trump had better become the best Democrat since FDR or he will be remembered as a total d+++++bag.
When one thinks about what Trump might do is probably similar to what the previous guy of the same age went through. Trump’s intellectual acuity has always been a question mark.
Especially given the charade for the Republican objective of tax cuts for the most wealthy among us against the will of as many as 90 pct of the people if you asked them.
Hey, Elon. The big money is in disinfecting the tax law that allows the the extreme concentration of wealth, while so many have no access to a social lifeline, a basic income.
YDS on display.
Only going to get worse.
Makes me think of that AC/DC song, ‘Highway to Hell’. We’re on it.
We’ve been on it for 50 years – but DC self-satisfaction and media oligopolies (until 1995-2000) made sure we stayed on it.
Great song that coincided with my sensibilities during a life stretch.
Until it changed. Wine turning into vinegar.
The story of life.
Italian city-states got into forced financing from their rich citizens. Here and now, there seems to be an industry to avoid that. The city-state was compact enough for monitoring public finances to see that the elites’ priorities (trade support, military, infrastructure) were being met. But then societies and priorities got so sprawling and politically contested. Our society took the path of least resistance: just wrote checks and assumed our extraordinary privilege globally would hold up our credit. That was happening from at least the late 1950’s, I believe, and finally it has started potentially breaking. Libs seemed to think there would be an ROI from just handing money to people. People talk about the shambolic state of the European society fiscally, with rampant tax evasion in many countries, and a large “informal” economy meaning service economy without entitlements. I think we are there, or headed there, perhaps with support (a nod and a wink) for aggressive elite tax avoidance from the feds now: an internal schism in society? I get an image of societies divided from within, looking to send the dinner check to other social classes. This “fairness” argument is going to get uglier. We drifted from dividing and sharing prosperity, assets (postwar) to dividing and sharing debt, liabilities. The ROI of the preceding entitlements model wasn’t there. I guess payoff paths are a VAT, our kind of corporate income taxes, tariffs, and inflation?
The last paragraph says it all. If our government doesn’t act to reduce the deficit, we will all pay for it in the form of inflation for a long time.
the frightening part?
You, and Wolf, are 100% correct.
The elefant in the room is the fact that 6 people in the US “own” as much as the bottom 50% in the population.
No government budget can fix the situation without adressing the growing oligarchy. It is not the first time the US has been at such a place with the age of the robber barons or Rockefeller.
No amount of reform to the healthcare system or education will fix it. There could be big savings but i fear a lot of spending cuts are trying to press water out of a stone.
“Tax the rich” is missing the mark. It doesn’t matter if someone has 1 million or 200 million. Thats peanuts. The 1% is quite poor compared to the truly obscene rich.
The billionare situation needs to be adressed. Not just to fix the budget but to also saveguard the democratic sytem. A sliding decline into a oligarchy is very possible and in the past the people part of the 0,001% kept their influence out of the open and supported the government.
Money is power… And there seams to be little checks and balances to keep the money in check if they deside to subvert the political process.
If the 1% were taxed at 100%, there would still be a massive deficit.
Give some hard numbers and let me know if this solves anything other than hurt feelings.
Well, this isn’t true. The top 1% (people who make over $700,000 a year) make a total of almost $4 trillion total and pay a total of about $1 trillion in tax. Since the deficit is currently a little under $2 trillion, you actually could cover the entire deficit and more with a 100% tax rate.
Of course, this isn’t what you’d want to do, but the money at the top does exist.
Something more reasonable would be to increase the top tax bracket (which basically only applies to the top 1%) from 37% to 60% (which it was at or above for most of the history of the income tax). This raises about $700 billion, while reducing the average after tax income of the top 1% from almost $2 million per year to “only” $1.5 million per year.
Or considering this is a crisis, ask for a bit more from everyone, including corporate taxes. Coupled with key targeted rationally considered cuts (not currently happening, but we can wish), and we could cover this with minimal fuss.
A different tack would be to look at wealth instead of income. The top 1% wealth holders in the US are those who are worth at least $14 million. Combined, they control $50 trillion in wealth or a little less than a third of the total.
So if you put a 1% wealth tax on only the amount of wealth you have over $14 million (i.e. if you have $14 million you pay nothing), you would earn roughly $300 billion.
If you lower the exemption to $4 million, you make $700 billion (remember this means that if you have $4 million, you pay nothing, if you have $5 million, you pay $10000, if you have $14 million you pay $100,000, and if you are one of the tech titans with $100 billion, you pay $1 billion).
So you can halve the deficit by a 1% wealth tax on net worth over $4 million (only the top 5% have this level), or by increasing marginal tax rates on the top 1% to 60% (where they were from 1917-1983).
Or by a 1% wealth tax on only the top 1% of wealth holders, and a marginal tax increase to 50% on only the top 1% of incomes.
anyone proposing a wealth tax is demonstrating his ignorance.
i oppose the wealth stratification due to stupid monetary policies, but a wealth tax does not and cannot work.
Just laying out some alternatives. Several countries have wealth taxes, including ones that we often would like to compare ourselves to (Norway and Switzerland in particular).
Many economists believe that wealth taxes can be one of the most efficient kinds of tax, but there are good reasons to be skeptical, mostly questions of enforcement and rich people leaving the country to go elsewhere.
But really it was in response to the skepticism about whether enough money exists at the top 1% level to make a difference in the deficit and the answer is clearly yes.
except it doesn’t. much of the so called “wealth” at the top if merely the result of an asset bubble fueled by decades of reckless monetary and fiscal policies.
any attempt to monetize that wealth through taxation would lead to a collapse of the bubble.
So someone who earns $700k would walk away with $280k. In whose mind is this right?
This is blaming the 1% for the faults of the government.
Numbers:
“Many economists….”
They don’t know anything
Brian,
The proposed 60% top tax bracket, which I’m not commenting on in terms of desirability, would be the top marginal tax bracket. A taxpayer would only pay 60% on income that exceeds the threshold for the top tax bracket, whatever that amount may be. The taxpayer would not pay 60% on all of their income as your example states. It’s fine to oppose a top tax bracket of 60% for many reasons, but it’s also important to understand how the income tax system actually works for this type of discussion.
Sure, raising only the top bracket is 60%, Yup still a bad idea.
AI says this would generate $112 billion in additional revenue. Wheaeas, DOGE is up to $115 billion.
Suppose the bracket was raised to 60%; the government would see this as an additional revenue stream, then borrow against it and spend it on completely stupid stuff.
Brian,
You and the commenter “numbers” need to discuss the discrepancy between raising $700B and $112B from a 60% top tax bracket.
The more significant issues are the morality of over-taxing and the carelessness of government spending.
As already mentioned, an additional revenue stream would be mortgaged and spent within a year–putting the government into deeper debt rather than paying down debt.
Heroin addicts use the same solution–more drugs.
It does not take this much money to run the government.
And to see the same results where $112B was returned, ask Copilot this:
“Under a hypothetical graduated tax system where the top marginal rate is 60%, how much additional tax revenue would be generated annually? Please calculate this based on income tiers (e.g., $700,000, $1 million, $2 million, and $5 million+), showing the additional tax liability for each tier compared to the current tax brackets.”
Whatddya mean “sliding into an oligarchy”? We are already there with the current batch blowing of Constitutional separation of powers regularly. That got started after the SC got bot out and passed Citizens United.
Paying off the debt will come off the backs of the plebes, which might have worked if they were able to save anything to have a surplus but the numbers don’t indicate that.
Personally I expect a VAT to get involved eventually. I guess since the top 20% are supposed to be 50% of the economy, that might work out. Hard to say tho.
2nd that.
Money is ‘free speech’ according to the Supremes. That was a mistake, IMO. and here we are.
that’s not what citizens united said. have you ever read that decision?
A 99% estate tax on sums over $250 million would go a long way…
With rules enacted to prohibit giving away the rest?
“6 people” – who? The MAG7 CEO/owners? What about the Waltons and Buffett and Soros etc?
Nonsense.
In their classic “Histrory of Interest Rates,” Sydney Homer and Richard Sylla referred to the Venetian consolidated debt, accumulated after the loss of Constantinople, as the “Monte Vecchio,” Italian for “old mountain.”
Congress, through deficit spending (which spending has been enabled by interest rate manipulation, sleepy or complicit media, and a complacent public), has created an American Monte Vecchio, and it puts Mt. McKinley to shame.
A bout of even higher interest rates, painful as they will undoubtedly be, could be the answer (if the Fed “allows” them…)
Dear John H…..why do you feel that the Fed will start to manipulate long end of the curve?
I think they realize the mistake (although will not publicly accept) and would most likely refrain from holding long dated Treasuries. At this point if the Fed is seen actively buying long bonds then the faith of the dollar will be shattered and likely it will be even more devastating than a temporary slowdown/recession.
I think the US has painted itself into a corner via a decade of foolish monetary and fiscal policy. No good choices left now…can only choose from bad ones.
Hi Aman-
When “emergencies” occur, an active government stimulates. It’s what most people (voters) want them to do. What stimulus method is most likely when debt is 120% of GDP and the deficit is north of $2 trillion? (likely higher in the future). I’m thinking it’s monetary stimulus, designed to lower interest rates.
Like you, I would love to believe that the monetary leadership has become mature. But when consequences of that decade of foolishness you mentioned obtain by either igniting more inflation or by sparking the next upward lurch in unemployment, I believe that they will again revert to the easiest temporary fix: producing more money units. They’ll go “wabbling back to the fire,” as Kipling said.
The American political system simply isn’t designed to handle a problem of this magnitude. The incentives that drive our politicians at the federal level have lead us to where we are. Those incentives need to be changed, but they can only be changed by the existing politicians who benefit from the existing incentives.
Kent:
Consider going one step further. It can only be changed by an informed citizenry.
At this point, Trump is the closest thing we’ve got.
Check out Milei in Argentina, however.
Well the last time the honor system worked was two generations ago.
When returning soldiers instituted it. And, religiously adhered to it.
Yeah, after decades of watching everyone not trying to avoid the iceberg that they knew was coming I an sick of this conversation. One side says they are fiscally responsible, but hasn’t shown the ability to have self control since the 1990s. The other side cannot and will not oppose the pretend fiscally responsible party, and loves to spend. People voted for their cake and eating it too for a very long time, and have kicked the can. No one actually wants a solution in Washington, so we are going to get inflation.
Logical. Occam’s razor, the simplest explanation is usually correct.
Your intricate description of the present is not wrong. Insincerity has become political gold. In the absence of public oversight. While the cat’s away, the mice are going to play.
IMO, we may be already in a recession during which the economy contracts. While the stability of the fully inflated asset balloons is in question.
Seems the easiest thing the president could’ve done would be to stay the course like everybody else has and hope the crash happens off his watch. He’s taking a lot of arrows for something that’s not really politically rewarding.
Trump is term limited, and not sure he really cares about tyhe GOP, so he can do as he pleases with little repercussions.
“Trump is term limited, and not sure he really cares about tyhe GOP, so he can do as he pleases with little repercussions.”
Sure, in theory. Here’s what’s going to happen. In about 2 years, he’ll start teasing the idea of another term. “A lot of people are talking about it….” He’ll point to polls that say should, that he’s “unbelievably popular” and has a mandate.
If he doesn’t push it to test whether he can get away with it, he’ll hand the mantel over to some combo of Jr and JDV, and then say he could have done it if he’d wanted to.
Bank on it.
Wanna bet on it?
Put up your money.
The constitutional limitation to 2 terms is not a theory, and an amendment to the constitution on this issue is never going to pass. People must like working themselves up thinking and talking about absurdities. Kind of like discussions about whether the US will have another election when one is already scheduled for November 3, 2026.
the crash would have happened anyway. he’s accelerating is to he can blame his predecessor.
Franz G.
the mechanism for a wealth tax is a robust estate tax. Easy and effective to do.
Separately, judging by your comments, in your opinion, nothing can be done about the current state of affairs. Do i have that correct?
yeah, a robust estate tax is easy to do. it’s also easy to avoid.
and yes i believe nothing can be done, because the american people demand much of this spending, but don’t want to pay the taxes to pay for it. that goes for all brackets and income levels.
Estate tax is easy to fix. You just roll back the cuts.
I agree that the business of America is business, no question.
The disagreement is what kind of business are we talking about, honest or dishonest.
Honest is often less profitable which I have an opinion. Profit should be a burden, a debt to the society that made it possible.
When the Government started sending out $600 checks during Covid in 2020 while simultaneously shutting things down I told her bad things are coming.
I still stand by that statement.
The republicans have a unique, but fleeting, opportunity to actually BALANCE THE BUDGET. They are in full control and will 100% own this outcome.
My prediction is that it will become apparent to more people that BOTH parties are fully OWNED by corporate America. Feudalism 2.0.
How do you balance the budget without reducing Defense?
Raise taxes
Carbon taxes have a constituency in favor. Nothing else seems to work well in reducing emissions.
Plus, you can throw some politics in it by doing a carbon produced import tax, and go ruin other countries – like China’s day.
Call it the Saving Medicare and F-ing China & Big Oil Act or something.
The simple answer is you can’t. The US doesn’t have too balance the budget but should reduce the deficit. Of course, the emperor’s new clothes, is tax cuts for the filthy rich with scraps for the dim watts who took a chance on the propaganda.
In fact, the biggest 2000 T budget buster is the President’s own tax plan. Only the little people pay taxes.
As Wolf has repeatedly said, citizens “hate, hate, hate inflation”. But I read another aspect about inflation worth considering. In her book “Broken Money” Lyn Alden quoted Vladimir Lenin about how the best way to bring down a government or society was “to debase the currency”, which can be done by severe inflation, and you can see how govt changes have frequently occurred historically in periods of hyperinflation. The reason is that both the proletariat (working class) and the bourgeoise (middle class) get hammered, while the ultra-rich can avail themselves of financial maneuvers where they are largely untouched, and sometimes come out profiting even more. Peaceably (or not), the govt is turned out.
Fifteen years of QE asset price inflation is not going too pay for itself. The inflation rate is what the Fed reckons will support the overpriced asset markets until they collapse because the potential buyers can’r afford the product.
Trump’s administration seems to be willing to take the overdue recession up-front, get it over with so the last few years are productive from his point of view which I’m pretty sure is different than mine.
Another component of tax receipts is the compliance % by the population. What do recent efforts to clawback funding from the IRS suggest for this going forward? What message does a regime focused on relaxing regulations – if not ending them for some agencies – give the population? Certainly, some people are morally grounded and would always follow the rules. But increasing numbers in the US now follow the opportunities. If our tax compliance moves closer to that of Greece, what will this chart look like years from now?
Compliance is also built off of fear. The Federal Government is not a creditor you want in your life.
Indeed ! The last time I cited the memorandum by an IRS director that explained the IRS interpretation. The IRS agent quickly dispelled the notion that was a valid interpretation of the tax code and began to apply a secret set of rules commonly applied by the IRS.
I folded.
“But printing more money to service an out-of-control debt” … appears to me to resemble a Ponzi. There is a never ending requirement for new money to roll over existing debt and incur new debt.
That’s why I consider this folding the printing into the definition of “debt” is a bit of a sham, since it sim-characterizes the transaction.
I think the debt ceiling should be broken into two pieces, the “debt” ceiling for money genuinely borrowed, and the “P” ceiling, for the money that is printed. I’m not sure P should stand for printing, or Ponzi.
Lot of negativity in the above comments. I guess everyone missed the good news. Daly says it’s all peachy with rainbows.
(Reuters) – San Francisco Federal Reserve Bank President Mary Daly still sees two interest-rate cuts this year as a “reasonable” projection, but with the labor market solid, the economy still growing and inflation edging down, policymakers can wait to reduce rates until they assess how businesses will adjust to tariff costs.
MW: Businesses are ‘on pause’ or ‘paralyzed’ until Washington’s ‘fog’ lifts, Fed’s Barkin says
Try these ideas on for size
When you die all your welth is taken by the US government. Nothing can be passed on up to 10 years prior.
There is a mandatory audit of all government expendaures yearly. If the budget is not ballanced, everybody working for the US government more than four years is excused, fired.
The retirement age is raised to 75 and social security payments are made by everybody working, regardless of their income levels.
Just a few ideas.
I tried them on, and they don’t fit. The print on the size label is really small, but it either says “non-starter” or “less popular than 60% top marginal income tax rate.”
Trump would say……Andrew, you’re fired.
you institute a stupid rule like that, and people will just avoid it. they’ll transfer the wealth out of the country. they’ll buy physical metals.
get rid of bad monetary policies that led to this “wealth,’ and you can do a lot more to reducing this problem.
Mr. Pepper, you forgot to mention Greenland.
Wolf, the debt problem has existed forever. As any reasonable person would conclude, it sure seems like a problem. And would be a problem in personal finances. (On a personal note, I carry zero debt- -do not even own a credit card.)
But is it really a problem for the US? And why was it not a problem 20 years ago?
Wait until the Dollar reflects its real international value.
All the drama does not replace the fact, that it will take decades to make most of the things we use everyday.
By all means don’t buy gold or non dollar investments! King Dollar is all you need!!! Real Estate always goes up in value!!! Our Goverment works in the best interest of the common man!!! Social Security will support you when your old!!! Free market capitalism is real and the marets are fair!!! The Federal Reserve works in our best interest!!!
Which Pill, red or black!
MW: Stocks down sharply with Dow losing 700 points, Nasdaq off over 2.5% on negative economic data
Gold up again.
S&P 500 HI was 6150 at one time. Every swinging dick had an opportunity to sell on top of the market and get out with a huge profit. Gordon Gecko (DJT) says greed is good, he will handle the markets. Reddit retail investors idiots are now crying about what to do, institutional shareholders have been selling out positions. March 2020 to March 2025 you had a good run. It was night before Uncertainty……buy the Meme stock dip and watch it fall. All this mayhem and the fundamentals never made sense to began with. Tulip mania, Wrestle Mania, Trump Tariffs – take your medicine
……and the stale adage، “taxpayers are on the hook for this back, or our grandkids will ” is a ponzi and absurd .
Boy the TDS on here is making the comments unreadable.
Just one guy’s opinion but Trump history & demeanor are obviously over the top but the guy is taking on things that this country has needed addressed for the better part of 25yrs.
A few comments Wolf. First of all, it matters who we owe the debt to. It’s unsustainable only if it’s owed to foreigners who will take those interest payments out of the US economy. Japan has been able to handle 200% debt to gdp ratio because the debt is owed to Japanese. While we are not as insulted, my point is we can handle the debt too because most US debt is owed to US companies and investors. Second, I want to point out a problem with cutting the debt. Right now that 3+% of gdp debt is what is in part causing us to grow GDP. So essentially we are powering GDP growth with debt. If we pull back on that debt and reduce deficits to the more sustainable 3%, it will cause a serious contraction in GDP, it will cause unemployment and a drop in tax receipts which will feed into a higher deficit and require yet more cuts. The economy y is trapped so I would think our best course is to inflate our way out of the debt instead of cutting.
Nice summary. Ray Dalio recently had recommended increasing allocation to gold to cover the risk of the government inflating away the debt. Other approaches?
I think the Debt to GDP is never stated correctly, because it includes debt held by the government itself of 7T. This is really just a placeholder for assets against a future obligation. That is why congress hasn’t taken the 100% of debt to GDP seriously – we are just at 100% to GDP right now.
“debt held internally” is a misnomer bordering on delusionary. These are Treasury securities held by government pension funds, including military pension funds, the Social Security Trust Fund, etc. These Treasury securities obligate the US government to the terms of the bonds, including paying interest and paying them off at maturity. The indirect holders of these Treasury securities are the beneficiaries of those funds. If those funds had invested in corporate bonds, it would be the same thing… those corporate bonds would still be real for the corporations that issued them, and they cannot just walk away from those bonds because some government pension fund bought them.
What is different about those Treasuries held by government pension funds is that they’re not traded in the market, and Wall Street doesn’t make a dime off them, coming and going, as it does with other Treasury securities.