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
Most include a combination of deep spending cuts and tax increases to bend the debt curve. Cutting spending. Most comprehensive proposals to rein in the debt include major cuts to spending on entitlement programs and defense.
What are 3 causes of the US national debt? ›
Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt.
How to come out from debt? ›
Make the minimum payments on all of your debts, and then funnel any extra money you have toward paying off your highest-interest debt. Next, concentrate on the debt with the next-highest rate, and so on. Put extra money toward the credit card or debt with the smallest balance.
What are 3 ways to eliminate debt? ›
How to get out of debt
- List out your debt details.
- Adjust your budget.
- Try the debt snowball or avalanche method.
- Submit more than the minimum payment.
- Cut down interest by making biweekly payments.
- Attempt to negotiate and settle for less than you owe.
- Consider consolidating and refinancing your debt.
By 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!
How can we fix the US economy? ›
Governance and institutions can be improved by simplifying business regulations and licensing, enhancing the country's legal system, streamlining the system of tax administration, and raising salaries for government staff in charge of providing vital services while limiting employment in the public sector to business ...
What is the biggest cause of US debt? ›
Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment account for sharp rises in the national debt.
What is the main cause of US 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.
How to reduce national debt? ›
Essentially, the debt-to-GDP ratio can be reduced in three ways:
- Fiscal austerity (i.e., spending cuts, tax increases or both)
- Negative real return on bonds (i.e., a nominal interest rate that is less than the inflation rate)
- Economic growth (i.e., GDP growing faster than debt)
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.
The major international owners of US debt include Japan ($1.1T), China, UK, Belgium, Switzerland, Cayman Islands and smaller amounts from the rest of the world. After the recent weak treasury auction, US government officials warned that they are seeing waning demand from international buyers.
How to pay $30,000 debt in one year? ›
The 6-step method that helped this 34-year-old pay off $30,000 of credit card debt in 1 year
- Step 1: Survey the land. ...
- Step 2: Limit and leverage. ...
- Step 3: Automate your minimum payments. ...
- Step 4: Yes, you must pay extra and often. ...
- Step 5: Evaluate the plan often. ...
- Step 6: Ramp-up when you 're ready.
Pay off your debt and save on interest by paying more than the minimum every month. The key is to make extra payments consistently so you can pay off your loan more quickly. Some lenders allow you to make an extra payment each month specifying that each extra payment goes toward the principal.
Can a debt be forgiven? ›
Debt forgiveness can happen in various ways, such as negotiated settlements, repayment plans or government programs. The goal is to help people manage their debts and financial stability.
What are some possible solutions to the international debt crisis? ›
Very likely, a resolution of the debt crisis would end with the debtor countries financed through long-term capital- bonds, equity, direct investment, and perhaps some forms of long-term indexed debt-rather than floating rate liabilities whose terms can change overnight.
Why is the US debt not a problem? ›
Is debt at that level a problem? For now, it isn't. The U.S. government borrows trillions of dollars a year at very low interest rates on global financial markets, and there doesn't appear to be much private sector borrowing that is crowded out by U.S. Treasury borrowing right now.
Can you move out of the US with debt? ›
Technically, nothing happens to your debt when you leave the country. It's still your debt, and your creditors and collectors will continue trying to get you to pay it back. Just as they would before, those efforts may include phone calls and letters.
