A debt-free America? Yes – it’s possible

We all know, liberals and conservatives, that the growth of the U.S. national debt is, to use a favorite word of our time, unsustainable.

Americans owe, as of July 2010, more than $13 trillion to our creditors — mostly foreigners who have loaned us this money over the years. This is 90 percent of the nation’s gross domestic product. By next year we could be above 100 percent. We are paying more than $300 billion in interest on this debt, mostly to foreign lenders.

Meanwhile, our annual deficit, currently running above $1.6 trillion, continues to add to the national debt.

We all know there is only one answer to paying down the debt and balancing the budget: cutting spending and raising taxes. Both are necessary. Getting leaders of both parties to be honest about that and to have the courage to do something about it is the great challenge faced by the Bipartisan National Commission on Fiscal Responsibility and Reform — headed by Erskine Bowles, former Clinton White House chief of staff and currently president of the University of North Carolina — and Alan Simpson, former Republican senator from Wyoming.

One idea for raising taxes to pay down the debt is the bill introduced this February by Rep. Chaka Fattah (D-Pa.). His “Debt Free America Act” (H.R. 4646) would impose a 1 percent “transaction tax” on every financial transaction — whether paid by cash, credit card or any form of financial transfer, the only exception being transactions involving the purchase or sale of stock. Theoretically, everyone would pay one cent on the dollar for every such transaction in America every day — whether $3 million on a $300 million business acquisition, $300 on the purchase of a $30,000 car, or $5 on a $500 ATM withdrawal.

To reduce the impact of such a flat tax on the poor, Fattah’s bill provides for a 1 percent tax credit for couples earning $250,000 or less ($125,000 or less for individuals) and discretion by the Treasury Department to exempt certain transactions on which lower-income people disproportionately rely. Another idea would be to amend his bill to exempt all transactions below $500.

Using 2008 numbers as an example: There was $755 trillion in total transactions that year. If you deduct the exempted $312 million in stock transactions, that leaves $443 trillion in new revenues, minus the cost of the tax credit and other possible measures to soften the impact on the poor. This means that with Fattah’s transaction tax in place, there is a real chance for eliminating the national debt within the next 10 years. In the long term, the transaction tax could replace the need to rely entirely on the income tax, which too often favors wealthier taxpayers who can game the system with fancy shelters and expensive tax lawyers and accountants.

  • scs2009
  • http://www.facebook.com/people/Diantha-Trouk/100000367724827 Diantha Trouk

    what about the fair tax? certainly this would be the better way to go.

  • Rob Miller

    My, my…a tax every time you move money around. That’s only skimming a mere 1% of $443 trillion off of the economy. Why, that’s only 30% of GDP, so we’ll never miss it. And of course, nobody’s going to try to avoid this tax by changing their behavior. people aren’t going to stop using banks and ATMs or sending wire transfers or taking out loans, right? This couldn’t possibly cause a liquidity crisis or lead to even more unemployment, no?

    This is simply a VAT ( Value Added Tax) by another name. And just like all VATs the government’s piece of the action will invariably rise as they find more things to spend our money on.

    Does anyone really think that once Obama and the Democrats get this scam through that it’s going to stay at a mere 1%? And not be extended to other kinds of transactions?

    Here’s a better plan. Cut Federal spending by a penny on the dollar each year, on a month by month basis.They’ll never miss it. And by the end of two years they’ll be spending 25% less.

    While we’re at it, we can say even more money by eliminating any number of wasteful government programs and departments that serve no purpose except to keep an army of politically well-connected bureaucrats in well-paid positions. How much money are Obama’s 40+ czars sucking up, for instance?

    Rob Miller

  • burkean09

    “Why on Earth is the USA still spending as much as we did during the Cold War on a military that is no longer needed? How do new aircraft carriers protect us from Al Queda attacks?”

    Because you don’t plan for the present. You plan for possibilities in the future. And yes, aircraft carriers and naval ships have been involved in the current war on terror. Both for launching sorties and fighting back against piracy.

    National defense is one of the explicit responsibilities of the federal government. It’s right there in the Constitution, indisputably. Want to cut spending? Start with non-necessities and non-responsibilities of the federal government.

    Annual defense spending is nothing compared to what we spend on entitlements and pork. Start there. Gut Medicare and Medicaid. Neither is called for under the constitution. Then move on to Social Security, the NEA, farm subsidies, and foreign aid.

    But no, you’ll have us cut the appropriations for the defense of the country. Because we don’t use aircraft carriers as often as you think we should to justify their expense. Never mind possible future conflicts with North Korea, Pakistan, China, or Russia. Let’s just live in the present and hope for the best in the future.

  • flips

    Or how about we cut a few hundred billion dollars out of our bloated Pentagon budget? Send the savings back to taxpayers or use that money to pay down the debt.

    Why on Earth is the USA still spending as much as we did during the Cold War on a military that is no longer needed? How do new aircraft carriers protect us from Al Queda attacks?

    Talk about welfare queens. Today they all seem to work for Lockheed and Halliburton.