If you watch CBS news, maybe you caught anchorman Russ Mitchell's recent interview with investor and economist Jim Awad, managing director of the investment firm Zephyr Management. While Awad acknowledged the United States is in serious debt, he stressed the problem can be fixed if the government gets going on it right away.
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Yes, fixing the debt is a Herculean task that will probably take years. In addition to the obvious, such as hiking certain taxes and reducing government spending, it could include a combination of interventions like any or all of the following.
1. Opening Our Borders
This would be highly controversial considering the border-control debate that has raged on and off for years. However, it has been argued that opening our borders to willing workers from all over the world would accelerate the creation of businesses that pay taxes desperately needed to reduce the debt. (For related reading, see How Countries Deal With Debt.)
2. Raising the Retirement Age
Having Americans retire a lot later, perhaps in their 70s instead of their 60s, could help fix the national debt by increasing the amount of time people pay income taxes and shortening their reliance on Social Security. Think about it, Social Security started when a lot more people had physical jobs like mining and factory work, which wear you out a lot quicker. Not as many Americans do those sorts of things anymore, so most should be able to work and pay taxes longer and draw on Social Security for less time. (For related reading, see A Look At Government Bonds And National Debt.)
3. Easing Off On Regulations
According to the Center for Fiscal Accountability, the regulation of businesses damages the economy to the tune of $1 trillion a year by increasing costs and inefficiency. Government spending to enforce regulations is $61 billion annually and rising, the Center warns. Thus, many economists and politicians advocate reducing regulation to help shrink the national debt. We could see regulations pared in many areas such as the environment, financial services and food production, to name just a few.
4. Revamping the Tax Code
This is one proposal of a group of six Democratic and Republican senators dubbed "the gang of six" by the media. To reduce the national debt and jump-start the economy, these senators have suggested things like lowering income tax rates, abolishing about $1 trillion in popular tax breaks for individuals and corporations and raising the gas tax. They also advocate raising the payroll tax on high earners, as well as cutting defense and other types of government spending and raising the retirement age. (For more, see Making Sense Of The Tax Code.)
5. Taking Cues from Abroad
Lots of other countries have found ways to reduce debt, and some of their methods could help America. In Canada, for example, there's a 5% national sales tax - a consumption levy many economists prefer to higher taxes on income or investments since those discourage work and saving.
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Harvard Business School economist Matthew Weinzierl has said that Australia is smart because it varies income tax rates by age. Down under, people pay less tax when they're younger and more when they're older and typically better able to pay higher taxes. In the United States, a similar system in which income tax rates rose steadily from age 25 to 55 could generate an additional $100 billion a year, Weinzierl estimates.
China might be onto something, too, by investing heavily in clean energy and the environment rather than steering government funds more toward healthcare, the way the United States does. Whereas "green tech" may generate jobs - and, in turn, more tax revenues - health sector investment could increase public and private health care spending by introducing costly new drugs and medical devices.
The Bottom Line
When you're on the hook for more than $14 trillion like the United States, you've got to explore different ways of reducing debt - even if they're controversial like most of the five money-saving ideas discussed here. All these ideas have good and bad points, and most call for sacrifice on the part of ordinary Americans. But as Jim Awad told Russ Mitchell, the debt problem can be fixed if we start now. (For related reading, see What The National Debt Means To You.)