Eliminating the U.S. government's debt is a Herculean task that could take decades. In addition to obvious steps, such as hiking taxes and slashing spending, the government could take a number of other approaches, some of them unorthodox and even controversial. Below are some of these options.
Key Takeaways
- There are a number of methods to reduce the U.S. national debt that go beyond raising taxes and cutting discretionary spending.
- One of the most controversial is to open the nation's borders to more immigration, kick-starting entrepreneurship and consumption.
- Raising the Social Security retirement age is a frequently suggested option.
- A national sales tax, such as seen in Canada and Japan, could also help.
Open the Borders
This is highly controversial considering the growing opposition to illegal and even legal immigration. However, immigrants start businesses at twice the rate of native-born U.S. citizens. So it has been argued that opening the borders to willing workers and would-be entrepreneurs from all over the world would accelerate the creation of businesses that pay the taxes that are desperately needed to reduce the national debt.
A faster-growing population fueled by immigration could also create more demand for everything from housing to cars to dishwashers. This could result in a stronger economy that can help pay down the debt.
Importantly, more individual wage earners would help finance Social Security and other safety-net programs for decades to come.
Raise the Retirement Age
Making the full amount of Social Security retirement benefits available to Americans in their 70s instead of their 60s could help reduce the national debt. It could increase the amount that people pay into Social Security and reduce the time that they rely on payments from the program.
The original Social Security retirement age was 65. Due to advances in health care and a focus on healthier lifestyles, people are able to work and live much longer than when the Social Security program was founded in the 1930s. In 1983, Congress raised the retirement age for the first time. As a result, those born in 1960 or later must wait until age 67 to collect their full benefits. Some have argued it should be raised again to 70 or even higher.
Implement a National Sales Tax
Lots of other countries have found ways to reduce their debt, and some of their methods could help the U.S. Canada, for example, has a 5% national sales tax on most goods and services—a consumption levy that some economists prefer to higher taxes on income or investments since those discourage work and saving.
Heavily indebted Japan is another country that turned to a sales tax. It raised its national sales tax to 10% in 2019; although the International Monetary Fund urged the Japanese government to double it to 20%, Japan has not yet implemented such a hike.
Revamp the Tax Code
There has been a lot of talk over the years about fully revamping the U.S. tax code. In 2011, a group of six Democratic and Republican senators who were dubbed "the gang of six" looked at options during a standoff over the U.S. debt ceiling.
They came close to reaching an agreement on a deficit-reduction plan that would have saved $3.7 trillion over 10 years. This included slashing discretionary spending as well as reforming the tax code to eliminate loopholes. But negotiations broke down and no broad action was taken.
How Much Is the National Debt?
According to the U.S. Treasury, the national debt is $33.15 trillion.
What Is the National Debt?
It's the amount of money that the U.S. government has borrowed (plus interest on those borrowings) to cover the outstanding costs it has incurred and which tax revenues aren't enough to pay off. The government borrows money to pay obligations by issuing Treasury bonds, notes, bills, and other marketable securities.
Why Is the U.S. Debt So High?
Essentially, because the government repeatedly spends more money than it receives in tax revenue. Many point to tax cuts passed by Congress as the major culprit for decreasing this income. Others point to out-of-control, politically-driven spending as the reason.
The Bottom Line
In any year, when the U.S. government spends more money than it takes in, a deficit results. The government then borrows to pay for outstanding costs. Those borrowings and the associated interest owed represent the U.S. debt.
Coming up with solutions to reduce that debt is challenging because the options are rarely popular. Of course, just as with an individual or family, cutting spending and increasing revenue are smart first steps. Beyond that, the government considers things like new taxes, a higher retirement age, removing loopholes from the tax code, and more to reduce annual deficits and the national debt.
FAQs
- Bonds. Using Debt to Pay Debt. ...
- Interest Rates. Maintaining interest rates at low levels can help stimulate the economy, generate tax revenue, and, ultimately, reduce the national debt. ...
- Spending Cuts. From 1921 to 1974, the President led the government budgeting process. ...
- Raising Taxes. ...
- Bailout or Default.
The National Debt Explained
money from federal income tax), a budget deficit results. To pay for this deficit, the federal government borrows money by selling marketable securities such as Treasury bonds , bills , notes , floating rate notes , and Treasury inflation-protected securities (TIPS) .
What would happen if the US paid off the national debt? ›
That gives them a vested interest in our continued success, entwining our economic destinies to some extent. If we paid off the debt, there would be no need to issue Treasury bonds. Countries would find other things to invest in, and their interests would follow their investments.
Who does the US owe the most money to? ›
Nearly half of all US foreign-owned debt comes from five countries.
| Country/territory | US foreign-owned debt (January 2023) |
|---|
| Japan | $1,104,400,000,000 |
| China | $859,400,000,000 |
| United Kingdom | $668,300,000,000 |
| Belgium | $331,100,000,000 |
6 more rowsBy January of 1835, for the first and only time, all of the government's interest-bearing debt was paid off. Congress distributed the surplus to the states (many of which were heavily in debt). The Jackson administration ended with the country almost completely out of debt!
What happens if US debt gets too high? ›
A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.
What country has the highest debt? ›
At the top is Japan, whose national debt has remained above 100% of its GDP for two decades, reaching 255% in 2023.
Who owns US debt by country? ›
Top Foreign Holders of U.S. Debt
| Rank | Country | Share of Total |
|---|
| 1 | 🇯🇵 Japan | 14.7% |
| 2 | 🇨🇳 China | 11.9% |
| 3 | 🇬🇧 United Kingdom | 8.9% |
| 4 | 🇧🇪 Belgium | 4.8% |
35 more rowsMar 24, 2023
Why Is the U.S. Debt So High? Essentially, because the government repeatedly spends more money than it receives in tax revenue. Many point to tax cuts passed by Congress as the major culprit for decreasing this income. Others point to out-of-control, politically-driven spending as the reason.
How much does the US owe China? ›
China is one of the United States's largest creditors, owning about $859.4 billion in U.S. debt. 1 However, it does not own the most U.S. debt of any foreign country. Nations borrowing from each other may be as old as the concept of money.
Including both private and public debt holders, the top three December 2020 national holders of American public debt are Japan ($1.2 trillion or 17.7%), China ($1.1 trillion or 15.2%), and the United Kingdom ($0.4 trillion or 6.2%).
Who does the US owe 23 trillion to? ›
First, the debt held by the public stands at more than $24.64 trillion. This represents debt securities, like Treasury bonds and notes, bought by banks, insurance companies, state and local governments, foreign governments and private investors.
Which country has no debt? ›
1) Switzerland
Switzerland is a country that, in practically all economic and social metrics, is an example to follow. With a population of almost 9 million people, Switzerland has no natural resources of its own, no access to the sea, and virtually no public debt.
Why is the US in so much debt? ›
One of the main culprits is consistently overspending. When the federal government spends more than its budget, it creates a deficit. In the fiscal year of 2023, it spent about $381 billion more than it collected in revenues. To pay that deficit, the government borrows money.
Why don't we pay off our national debt? ›
Though individual borrowers are expected to pay off debts, the same isn't true for governments, Krugman argued in a column for the New York Times on Friday. That's because unlike people, governments don't die, and they gain more revenue with each passing generation.
Can the US inflate away its debt? ›
If a government wants to reduce the real value of its debt, it may intentionally create inflation by adopting expansionary monetary policies. These policies could involve increasing the money supply, lowering interest rates, or engaging in quantitative easing (buying government bonds or other assets from the market).
What would happen if the US printed enough money to cover all the debts? ›
Printing more money is a non-starter because it'd break our economy. “It would take care of the debt but at a price that's far too high to pay,” Snaith says.
