The U.S. national debt has now surpassed what is truly a staggering number – $37 trillion – and on its way much, much higher. Many market participants and experts believe that Trump’s recently-passed tax and spending bill will blow the deficit to an unsustainable level. On that, we’ll have to see, but no one can argue that our national debt isn’t a problem and shouldn’t be a priority.
Of course, many policymakers will tell the public that prioritizing the country’s debt load is a top priority. It should be, and it seems like there’s a fair amount of rhetoric to support that notion.
But the reality is that money buys votes, and whether you’re giving money away via tax breaks (much of which will flow through to the upper echelons of earners) or give stimulus checks to all, government stimulus is still stimulus. Those with more money to spend will likely do so, leading to higher inflation expectations moving forward.
That said, there have been some intriguing proposals put forward to reduce the national debt – a problem many think is unsolvable. Let’s dive into what some of the experts think could be done to resolve this decades-long issue for the U.S.
Simpson-Bowles Plan
A debt reduction plan in process
You know when there’s a plan out there that’s named the “Simpson-Bowles Plan” that it’s a serious one. Officially known as the National Commission on Fiscal Responsibility and Reform, the Simpson-Bowles plan was actually a prior piece of legislation introduced in 2010 to help tackle the massive and growing U.S. government debt load.
The plan stipulated for as much as $4 trillion in deficit reductions over a decade, though the proposal ultimately did not gain the necessary number of votes to be formally debated in congress. Shocker.
What’s interesting about this plan is it called for a two-way approach to reduce the government’s deficit. Rather than simply tax hikes or spending cuts, this bill brought both to the table. The idea was to cap discretionary spending from the government, and reform social security to ensure its long-term solvency. That’s an issue that’s for another day (apparently), but one which is clearly starting to become more of a talking point, even among current policymakers who vowed to never touch this program (other than in increasing payouts over time).
What’s interesting too in looking at this plan is that even the most aggressive assumptions for how fast the government’s debt could increase over time have been surpassed. While there’s still hope for fiscal responsibility in the form of some similar bill down the line, it appears that demographic shifts have made such proposals unlikely at this point.
Healthcare and Social Security Reforms
A female healthcare worker flexing her muscles
There have been numerous pieces of legislation that have been talked about and even proposed over the years to tackle the ever-growing debt problem the United States government continues to push aside for another administration. However, two of the biggest buckets of money that go out (aside from interest on the government’s debt and defense spending) are healthcare and social security. These two areas are projected to account for roughly $5.6 trillion in spending this year alone. What’s even more staggering is that these expenses are anticipated to continue growing at a 7.1% clip over time.
I’m not seeing taxes increase by 7.1% each year, and the economy broadly isn’t expected to grow at this clip over the coming years. That’s an unsustainable recipe, never mind the fact that when social security was put in place in the 1930s, the average retirement age of 65 was older than the average life expectancy in the U.S.
We’re all living longer, which is fantastic. But as the cost of healthcare and social programs continue to outpace inflation at a rapid pace, there’s going to need to be some level heads that address this issue at some point. I say this as someone who will take social security as well.
Bottom Line
A person working at a desk
There’s still room for some sane heads to prevail and bring back some responsible fiscal spending and debt repayment options to the table.
And while it’s true that there will likely be some short-term pain associated with such moves, it’s also true that it’s been more than two decades since we’ve seen the government post a surplus. That’s far too long of a time, outside of wartime periods.
Those calling for some fiscal conservatism and hoping this most recent administration would bring down the hammer on waste, fraud and abuse may need to continue hoping. We’ll have to see if and when the populace decides to vote in someone with an aggressive debt repayment agenda, but until then, it’s going to be more of the same on the deficit front, most likely.
Top Gaining Stocks
Top Losing Stocks