The National Debt Passed $40 Trillion - Which benefits Only The Wealthiest

The Republican Party used to complain loudly that our national debt was too large (especially when a Democrat was in the White House). No more! Now it is Donald Trump, with the help of a Republican-controlled Congress, that is rapidly increasing the national debt. While this is not good for the country, it does benefit those the GOP cares the most about - the richest Americans. Here's what Robert Reich has to say about it:

The U.S. national debt has officially surpassed $40 trillion, months earlier than forecasters had expected — because of billions of dollars in lost revenue from Trump’s invalidated tariffs, Trump’s tax cuts (mostly to big corporations and the very wealthy), and the soaring costs of Trump’s war.

Trump’s hair-brained treasury secretary, Scott Bessent, says there’s nothing to worry about because the fiscal trajectory will stabilize. Investors obviously don’t believe him because they’re demanding much higher compensation for buying and holding American bonds. The yield on 30-year U.S. Treasuries hit its highest level in nearly two decades this week, reflecting those growing concerns. 

Should you worry? Well, it’s not as if we’re heading into a depression. Passing the $40 trillion threshold doesn’t suddenly cause the world to lose confidence in the dollar.

The problem is that an increasing portion of our nation’s budget — and your tax dollar — is dedicated to paying interest on this growing debt. Annual net interest payments on the federal debt have surpassed $1 trillion, making servicing the debt one of the largest of all federal budget expenditures.

That’s money we don’t spend on schools, healthcare, roads and bridges, and social safety nets. We’ll soon be paying more in interest on the federal debt each year than we spend annually on Medicare. 

So, who exactly receives these interest payments? This is an issue you hear very little discussion about, because the wealthy and powerful of this country would rather you not know. (And don’t expect Trump suck-up Bessent* to tell you, because he’s too busy denying that economic inequality is worsening.)

Foreign governments and foreign investors hold only about 30 percent of our debt. The rest — roughly 70 percent — is held domestically. That is, we pay the interest to ourselves.

And who, exactly, is the “ourselves” who receive these interest payments? The Federal Reserve holds part of this debt, state and local governments hold part.

But the biggest chunk — nearly half — is held by mutual funds, pension funds, insurance companies, and banks. 

And who owns them? Americans who invest in these funds — and who thereby, directly or indirectly, hold Treasury bills.

And who, exactly are these Americans — the Americans who are directly or indirectly collecting a large amount of the interest we’re paying on the national debt? 

People at the top.

The richest 1 percent of U.S. households hold about 35.6 percent of all financial assets — shares of stock, corporate bonds, and Treasury bills — so it’s safe to assume they hold at least a third of all Treasury bills.

Here’s where things get really interesting.

Decades ago, wealthy Americans financed the federal government mainly by paying taxes. Their tax rate was far higher than it is today. 

In the 1950s, under President Dwight Eisenhower, the richest Americans paid a marginal tax rate of 91 percent. (Tax deductions and tax credits lowered this top effective marginal rate somewhat.)

Today, the tax rate on wealthy Americans is far lower. The richest 400 Americans pay an average effective total tax rate of about 24 percent — including federal, state, local, and corporate taxes. Jeff Bezos — America’s second or third richest person — paid no federal income taxes in 2018. Trump paid no federal taxes for years before he became president. 

So now, wealthy Americans finance the federal government mainly by lending it money and collecting interest payments on those loans.

As I said, interest payments on the national debt this year have surpassed $1 trillion, and a big chunk of that is going to wealthy Americans.

Keep following the money.

 

One of the biggest reasons the federal debt has exploded is that tax cuts — starting with the George W. Bush administration in 2001 and extending through Trump’s 2018 and 2024 tax cuts — have reduced government revenues by $10.6 trillion.

Most of the benefits from those tax cuts are also going to the wealthy.

Since 2000, 65 percent of the benefits from tax cuts have gone to the richest fifth of Americans — 22 percent to the top 1 percent.

So, you see what’s happened?

Decades ago, the wealthiest Americans financed the government by paying higher taxes. Now, the government pays wealthy Americans interest on a swelling debt, caused largely by lower taxes on wealthy Americans.

Which means a growing portion of your taxes and mine is now paying wealthy Americans interest on those loans instead of paying for government services everyone needs.

So, from now on, whenever you hear someone fret about how huge, horrible, and out-of-control the national debt is, explain to them that it’s largely because of tax cuts to the wealthy — who are also the major recipients of interest on that debt.

America’s wealthy have never been wealthier. Scott Bessent* may deny we’re in a K-shaped economy, but he’s dead wrong. If the wealthy paid their fair share of taxes, we wouldn’t have such a huge federal debt. And we wouldn’t be paying them so much interest on that debt. 

The Massive U.S. Debt Is Making The Oligarchs Even Richer

The following is part of an excellent article by Thom Hartmann (at The Hartmann Report):

Prior to Reagan’s presidency, we’d been steadily paying down our 106-percent-of-GDP debt from World War II; by the time he came into office in 1981, Presidents Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter (and their Congresses) had paid it down to a mere 31% of GDP.

And while we were paying down that debt, we also built the interstate highway system, put into place free college and cheap mortgages for millions with the GI Bill, created Medicare and Medicaid, built thousands of new schools and hundreds of new hospitals, and sent men to the moon.

We were able to do all that because during that entire New Deal era, right up until Reagan took office, the top marginal income tax rate on morbidly rich money hoarders ran between 70 and 91 percent.

One could get rich, but it was nearly impossible to become an oligarch like today. . . .

Reagan and Bush Sr. took our national debt from under $1 trillion and jacked it all the way up to $4.4 trillion in a mere 12 years. If you add up the impact of Reagan’s, Bush’s, and Trump’s tax cuts for billionaires and corporations, and add in the $8 trillion from the wars in Afghanistan and Iraq that GW Bush lied us into, it pretty much equals our entire ~$40 trillion national debt today.

And now Trump wants to give the Pentagon another $1.5 trillion next year, an explosion of “defense” spending that will re-stimulate the economy and add to our debt, crushing families as it spikes interest and inflation. Not to mention the billions he’s demanding from Congress right now to cover the costs of his and Bibi’s stupid war against Iran.

And here’s where the story gets wild with a point that probably 95 out of 100 Americans don’t realize: that trillion-plus dollars we pay every year for interest on our national debt doesn’t just vanish or fly into outer space; most of it goes straight into the pockets and money bins of the morbidly rich.

What a scam!

Forty-five years of Reaganomics have converted what were once the tax bills for the morbidly rich into a source of extremely safe revenue for them, since they’re among the largest holders of US Treasuries. And we’re paying the bill to shovel all that interest money into their money bins.

Money that flowed from the rich into the Treasury between the 1930s and 1980s as taxes now flows from the Treasury into the pockets of the extremely rich every quarter as interest payments, and it’s paid for by working people with their paychecks.

 

We spend more making interest payments to rich people every year than we do on Defense or Medicare, and almost as much as we spend every year on Social Security; interest on the national debt is the second largest line-item in the entire national budget. . . .

When Republicans loudly and self-righteously proclaim that America can’t afford Medicare for All or tuition-free college, we all need to be clear about what they’re really saying. They’re telling us that they’ve already spent that money, on themselves and their rich buddies, and stuck you and me with the debt and the interest payments.

We can step into that information void created by our captured media and flaccid Democratic messaging. Tell everybody you know how this has screwed most of us, while making Musk, Ellison, Bezos, Zuckerberg, and their billionaire class richer than any pharaoh or king in world history. 

And demand that our candidates promise to raise taxes on the morbidly rich and corporations back up to reasonable levels while funding modern social programs like everybody else has.

After all, we paid down most of our national debt once before following the most expensive war in world history, and we did it while building the world’s first more-than-half-of-us middle class because we taxed great wealth at rates requiring the morbidly rich to contribute to society like the rest of us. It worked then and it will work now, if we can just squeeze the political and moral courage out of our elected representatives.