INVEST IN JOY
Cygan: The four-letter word politicians avoid
Politicians like to talk. They talk about inflation, the war in Iran, the Epstein files, and where they stand on lots of issues. However, they rarely talk about debt. Why do they avoid the issue?
Because the only way to reduce the U.S. debt is to either raise taxes or reduce spending.
How many politicians would want to campaign on a platform of raising taxes? Americans hate the idea of higher taxes. Or how about reducing Social Security or SNAP benefits?
Americans are already struggling with inflation, which causes higher prices for food, medical care, gasoline and housing. Would a politician get elected if he or she promised higher taxes or fewer government benefits? Unlikely.
Yet our debt is increasing rapidly, and it is dangerously high. The total U.S. national debt is now $39.2 trillion. The debt that countries carry is often described as a percentage of gross domestic product, or GDP. For the first time since 1946, the U.S. debt-to-GDP ratio is over 100%.
What is included in the $39.2 trillion debt?
Roughly $32 trillion is owned by external investors, the Federal Reserve, foreign countries, and state and local governments. This includes treasury bills, notes and bonds that are issued by the federal government and are purchased by investors. If an investor buys a $10,000 five-year Treasury note, it is basically an IOU from the federal government. In five years 鈥� at the maturity date of the Treasury note 鈥� the federal government must pay back the $10,000 back to the investor, and it also pays interest to the investor every six months.
About $7 trillion is owed to federal trust funds, including Social Security and other programs. These are termed 鈥渋ntragovernmental holdings.鈥�
What is causing the debt to increase?
Aging demographics: Our society is aging and living longer, causing Social Security and Medicare costs to increase.
Increasing healthcare costs: The U.S. has the highest healthcare costs per capita of any advanced nation. At $14,885 per person per year, the U.S. healthcare cost per capita is 49% higher than Switzerland, which is the next highest nation.
Rising spending and inadequate revenue: The Office of Management and Budget provided statistics that show spending will exceed revenues by over 5% of GDP in 2026, with spending projected to grow more rapidly than revenue during the next 25 years.
The last time we had a balanced budget was in 2000. Yet reportedly, 鈥�81% of voters say they want the president and Congress to spend more time addressing the debt,鈥� according to the Peter G. Peterson Foundation 鈥� a nonprofit, nonpartisan organization dedicated to increasing public awareness of key fiscal challenges threatening America鈥檚 future.
The Speaker of the House, Mike Johnson, said in an interview last month that the 鈥渓argest spending items, the reason we鈥檙e in trouble is because over 74% of federal spending is on autopilot 鈥� mandatory spending, that is your entitlement programs like Medicare, Medicaid and things like Social Security 鈥� (and) they have to be adjusted and fixed. We have a plan to do that next year, and it鈥檚 critical, because we鈥檙e at $40 trillion plus in debt. At some point you get into a hole so deep you can鈥檛 climb out of it, so desperate times call for desperate measures.鈥�
His comments were construed by some as suggesting reductions to benefits are planned.
How can we reduce the debt?
At the beginning of this article, I stated the two ways to reduce our national debt are to raise taxes or reduce spending. With that in mind, consider the following proposals:
We increase the pressure on the current administration and Congress to reduce spending. The Pentagon鈥檚 Briefing to Congress estimated the Iran war cost $113 billion. Moody鈥檚 Analytics estimated the war cost taxpayers and U.S. consumers $132 billion. Replenishing the nation鈥檚 weapon stockpile will cost billions more. (The Center for Strategic and International Studies estimated the U.S. used between 45-50% of its missiles). The Washington Post reported last month that the new ballroom 鈥� labeled 鈥淭rump鈥檚 ballroom鈥� 鈥� will cost $600 million, with half coming from taxpayers. The New York Times also reported that Immigration and Customs Enforcement, or ICE, spent $700 million on seven large warehouses for detained migrants. ICE now plans to sell them or give them to other federal agencies. There are many examples like this; the millions and billions add up to real dollars.
There are undoubtedly 鈥渆armarks鈥� that benefit specific members of Congress, and they add up to billions. These should be challenged and eliminated when possible.
The IRS workforce experienced steep declines, and the 2027 IRS budget represents a 12.2% decrease from 2026. The annual IRS budget is 40% below 2010 inflation-adjusted levels. With the reduced staff at the IRS, there have been rumblings that audits of wealthy taxpayers have decreased significantly. This may entice wealthy taxpayers to more aggressively use tax loopholes to pay lower taxes. This will lead to lower revenues. Adequately funding the IRS with an emphasis on generating accurate taxes from wealthy taxpayers would increase revenue.
President Donald Trump鈥檚 2017 Tax Cuts and Jobs Act lowered the maximum corporate tax rate from 35% to 21%, and eliminated the top 39.6% tax bracket for individuals. I recommend raising the maximum corporate tax rate to 28% to 30% and re-enacting the 39.6% bracket for high-income individuals. These two changes would significantly increase revenue.
Recognizing that politicians do not want to raise taxes for lower- and middle-class Americans, I propose they promise to raise taxes only on the wealthy. Many of the billionaires in the U.S. seem to endorse the current administration, likely because they have been promised financial benefits, such as lower taxes. This is true of many of the billionaires in the technology industry, although there are a few exceptions. Some states are trying to pass special taxes on the wealthy, but this should be done on a federal level. Warren Buffett proposed 鈥渢he Buffett Rule鈥� in 2012. It would have required a minimum of 30% taxes on households earning over $1 million in income. Due to the strong performance of the stock market during the past 15-plus years, the $1 million threshold seems too low. I propose using the Buffett rule for all households with over $5 million in income. This would result in higher federal taxes and would only impact wealthy taxpayers.
The current administration should pursue fraud aggressively, in an effort to reduce spending in Medicare, Medicaid, Social Security, healthcare, the military, industry and government contracts. On June 24, the U.S. Department of Justice announced a $6.5 billion healthcare fraud case that targeted 455 people who reportedly submitted false Medicare and Medicaid claims. This is a positive step.
The worst thing we could do would be to accept the ever-growing debt and be complacent. I believe we are at a point in American history where our elected officials in the Senate and House of Representatives will listen to us, and we need to become more involved in protecting our future for our children and grandchildren. Maintaining our freedom and our democracy is essential.
Donna Skeels Cygan, CFP庐, MBA, is the author of 鈥淭he Joy of Financial Security.鈥� She owned a fee-only financial planning firm in Albuquerque for over 20 years before recently retiring. She welcomes emails from readers at donna@donnaskeelscygan.com.
