By Tim Courtney, Chief Investment Officer
Currently, U.S. national debt exceeds $28 trillion. Broken out individually, this amounts to approximately $85,000 per person.1 This is not counting the trillions attributed to unfunded liabilities such as Social Security and health care, as well as debt at the state and local levels.
This has been known to all of us for a long time, and we’re reminded of it frequently. Japan has famously had an even larger debt to gross domestic product (GDP) ratio for some time.2 Yet, things keep on going without much change other than the numbers keep getting bigger.
As noted previously, the word “economy” comes from a Greek compound word meaning household management, with national economies being a large collection of households.3 Individual households that are managed with ever increasing debt don’t stay out of bankruptcy for long. However, our government can take some actions that we at the household level can’t.
Here are some ways that our future debt could become smaller.
These are some common ways we have seen our government address debt. Since reducing spending has not been one of them, we should expect to see some combination of all four of these and other solutions considered in an attempt to manage debt costs.
We are discussing these issues within our investment team at a portfolio level but many of these solutions will impact planning decisions as well. If you have any questions about how potential changes might affect your accounts or future planning, please contact your Exencial advisor.
1. Peter G. Peterson Foundation (3/2/21) – The national debt is now more than $28 trillion. What does that mean?
2. Barron’s (6/10/20) – Japan’s debt mountain: How is it sustainable?
3. Investopedia (5/10/21) – Economy
4. Tax Foundation (4/6/21) – Biden’s proposed capital gains tax rate would be highest for many in a century
5. The Balance (3/16/21) – How the federal estate tax exemption changed from 1997 to today
6. Congressional Budget Office (2/1/21) – An overview of the economic outlook: 2021 to 2031
7. CNBC (4/20/21) – Bipartisan plan to fix Social Security draws criticism
8. Investopedia (3/25/21) – 2021 Social Security tax limit
9. Bloomberg (5/7/20) – Inflation is the way to pay off coronavirus debt
10. Global Financial Data (10/27/21) – Paying off government debt