One solution for solving the US debt issue is to raise taxes, particularly on the wealthy. I was curious about the number involved and whether that was a feasible possibility. Here’s what I found from a perusal of the Internet (links provided to the sources of the data):
US Debt – $16 trillion (almost exactly, although I’d be happy to keep the round off error if you would give it to me.)
Debt interest payment in 2011 – $454,393,280,417.03 (source US Treasury). That’s almost $500 billion, or nearly half a trillion dollars, even at only an average interest rate of 2.8% (calculated as simple interest by dividing interest payments/debt).
August 2012 Interest Payment – $20,045,169,656.99 (source US Treasury). That’s $20 Billion a month.
Those numbers are huge – too big to think about. So let’s put it in terms of how many people are paying taxes that only goes into paying the interest on the debt:
The average individual income in the US – $50,000 (source). I’m not sure if that’s the average income of people working or the average income of everyone, including people not working. Probably the former since it is the average income.
Taxes paid in 2011 by $50,000 tax payer (using the tax tables ) – $7550. Note this would be an income of $50,000 after deductions – probably someone earning about $60,000 before deductions.
Number of average ($50,000 income) taxpayers whose taxes go only to pay for debt interest – 60 million taxpayers (interest divided by the aaverage tax payment). This is more than the population of New York and California, combined. This means that if we didn’t have any debt, everyone in New York and California could go without paying taxes and we’d still have the same amount of money to spend on other things!
For perspective: ocial Security Cost in 2011 – $820 B. So the interest paid is a little more than half of the amount that is paid out in Social Security payments.
The US credit rating has been declining (downgraded twice) as our debt has been climbing. It is likely that we will need to start paying more in interest if this continues. Interest payment, if the average interest rate is increased to 4% – $640 B (calculation).
If we continue spending as we currently are, we will increase the debt by $6 T over each four year period, or about $1.5T per year. This means that in 8 years the debt will be $24 T. Interest payment at current interest rates if debt increased to $24 T- $672 B. Interest at 5% if debt increases to $24T – $1.2 T
Now let’s look at what it will take to pay this off:
Population of the US – 314 M
Individual share today at $16T if every man, women, and child pays their share: $50,955 (debt divided by population). If 30% of people pay and everyone else gets a free ride (more likely) – $152,866. Individual share at $24 T- $76,433. If only 30% of people pay – $229,299. This means that the people who will be paying, which will include a lot of middle class families, will owe the equivalent of the cost of a decent house in the midwest today, and owe the equivalent of a nice house in the suburbs of a city in 8 years if we keep up the current trajectory. How many will not be able to buy a house because they will be paying for a house they do not get to live in?
Could we pay off the debt if we confiscated all of the wealth held by the wealthiest 1%? Let’s see:
Net worth of top 1% = $57.4 T x 0.354 = $20.3T
Note also, for the top 400 income earners, total yearly income- $36 B.
So the answer is yes, we could pay off the debt if we confiscated most of the wealth of the top 1%. Note that this could only be done once and would be incredibly unfair since you would be taking money that had already been taxed several times. You would also probably not actually get the full amount since it would be in things like stocks, real estate, and private businesses. It is likely that the value of stocks and real estate would drop dramatically if you tried to grab a bunch of it and sell it on the market (who would want to own stocks and real estate if the government could just grab them from you and sell them). The value in private businesses would fare even worse since the skills and devotion of the owners is a big part of the value of a business. You can’t sell a successful business and expect to get anything close to its value.
Note also that given another 3-4 years of overspending as we are, there won’t be enough money held by the top 1%, even if you took it all and still got top price for it ont he markets, to pay off the debt.
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