There is lots of talk in Congress, at the White House, on the campaign trail about cutting taxes. Let’s cut payroll taxes! Let’s cut income taxes! Let’s cut corporate taxes!
Great, but what about the tax on America? It’s big and going up.
Haven’t heard about the tax on America? That’s probably because this tax goes by the stealthy name of “interest on the national debt.” And it is one of the toughest taxes around because it hides in plain sight. No one pays much attention to it and so other taxes get all the attention.
But that might change soon. You might have noticed that interest rates did something very peculiar this week — they rose. A stronger economy, somewhat softer demand from investors added up to slightly higher yields on 30-year Treasury bonds. It wasn’t much of a change, sure, but it did send mortgage rates slightly higher — from around 3.8% to over 3.9%.
The point is that interest rates won’t stay low forever and markets are looking anxiously for the turn and once that happens interest on the national debt will boom. This year, the Treasury is expected to shell out $224 billion in net interest payments to investors. That is expected to top $400 billion in five years, an increase of 80%.
Why do I call interest on the national debt a tax? Because about half of this money flows overseas. It’s the price we pay to China and Japan and the oil-exporting countries for borrowing their money to keep our government afloat. And because that money is not spent or reinvested in the U.S., it is basically a tax on America.
Let’s put that tax in some perspective. Remember all that arguing about whether or not Obama is a “Food Stamp President?” Well, spending on the Supplemental Nutrition Assistance Program will cost about $81 billion this year. That’s less than the tax on America — the interest we pay to foreign holders of U.S. debt.
Maybe you think 99 weeks of unemployment benefits was too generous? Well, the tax on America is higher than the $102 billion the federal government will spend on unemployment insurance this year.
And this tax is going to get a lot worse. By 2017, the Congressional Budget Office figures interest rates on the 10-year Treasury will be back to a more normal 5.4% or so. And in that year, the tax on America — the share of interest payments we send overseas — will be higher than spending for food assistance, unemployment compensation, child nutrition and the child and earned income tax credits combined.
We know what the tax on America is doing to our economy. It makes it harder to grow and makes future generations poorer. Borrowing so much money from abroad also makes us more dependent on some countries that do not always share our interests.
A lot of people have taxes they’d like to see cut. Here’s a thought. What about cutting the tax on America?