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See who will pay to fix the country’s growing debt
America’s most unsolved gigantic problem is the $35 trillion national debt. It’s rapidly growing to unsustainable levels, and Americans will eventually face some unfortunate choices.
Neither of this year’s presidential candidates — Democrat incumbent Joe Biden and Republican challenger Donald Trump — is being honest with voters about the sacrifices that lie ahead. Biden wants increase taxes on corporations and the wealthy without touching the benefits of budget-busting retirement programs, Social Security and Medicare. Trump pretends that some new tariffs on imports and further tax cuts on supply will magically solve the problem.
Virtually no politicians tell the truth about how to fix the debt because the real answer is that there’s something for everyone to hate. Tax increases, spending cuts, and benefit reductions are all inevitable, and this message upsets so many voters that telling the truth and getting elected are mutually exclusive.
However, there are solutions. In one new analysis for the Manhattan InstituteBudget expert Brian Riedl outlines a series of actions Congress can take to stabilize federal borrowing and avoid a debt crisis that would trigger high interest rates, runaway inflation, or both. The United States doesn’t have to pay off its entire national debt. It just needs to cap it at about 100 percent of GDP and keep it there. And the actions Riedl outlines aren’t the draconian ones that will be needed if Washington drags its feet, as usual, and waits until the last minute to address the problem.
There are some truths to the math of debt. One is that taxes on the rich will have to go up, because that’s where the money is. The share of national wealth controlled by the top 1 percent of earners has increased from 14% in 1990 to 16.8% in early 2024while the share for the bottom 50% has fallen slightly. Higher taxes on the wealthiest Americans would restore some of the balance lost over the past 30 years.
Another inevitability is that wealthier seniors will have to pay a little more and receive a little less, because they receive a disproportionate share of federal benefits. Many Medicare and Social Security beneficiaries mistakenly believe that they have accumulated contributions to which they are fully entitled when they retire, but that is not how these two programs work. Instead, both programs are largely funded by current workers who pay for enrollees according to benefit schedules that in some cases were set long ago, when life expectancy was shorter and retirement life very different.
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Current Medicare and Social Security enrollees should not complain because most are receiving more than they deposited. The average retiree today will have paid about $176,000 in Social Security taxes and will receive about $238,000 in benefitsadjusted for inflation. For Medicare, lifetime taxes are about $48,000, while benefits will total $298,000also adjusted for inflation.
Part of the reason the federal budget outlook is so bleak is that the total cost of Medicare and Social Security is exploding as baby boomers flood the programs, and there aren’t enough workers coming in to pay all the benefits due on the current schedule. The ratio of workers to retirement beneficiaries has fallen from 5.1 in 1960 to about 2.9, and is expected to reach 2.5 by 2030. Fewer workers are funding benefits for more retirees, and both programs are expected to run out of money in the early 2030s.
One way to keep benefits in full might be to simply raise the payroll taxes that fund Social Security and Medicare, or to raise the Social Security tax cap, which applies only to the first $168,600 of income. But at some point, that distorts the entire purpose of these two programs, which were designed to keep seniors out of poverty — not to boost seniors’ lifestyles at the expense of younger Americans still trying to build families and careers.
Social Security and Medicare have largely operated by providing stipends and last-resort health coverage to vulnerable seniors. At the same time, today’s retirees have become the wealthiest demographic group in American history, thanks to the booming economy of the 1980s and 1990s, an 11-fold increase in stock values over the past 30 years, and a three-fold increase in home values. Many retirees own their homes or have small mortgage payments, ample savings, and no child-care burden.
Not all seniors are wealthy, of course, but as a whole, older Americans control more wealth than any other group. The median net worth of people between the ages of 65 and 74 is $1.8 million, the highest of any age group. according to the Federal Reserve. The second highest is for those 75 and older, with a median net worth of $1.6 million. The Wall Street Journal recently reported on the rapid growth of retirement towns in the South where baby boomers party “like they’re in college, except they don’t have to go to class and they have $3 million in the bank.”
Will lawmakers have the stomach to tackle the nation’s debt? The grounds of the U.S. Capitol. (TB/RC/CLH) (REUTERS / Reuters)
Social Security and Medicare are the nation’s most expensive social programs, but the benefits flow to America’s wealthiest demographic. Raising taxes to maintain those benefits at current levels would amount to “the largest intergenerational wealth transfer in world history,” Riedl wrote in the Manhattan Institute analysis.
His set of solutions involves reasonable sacrifices for those who are able to give, as the chart above illustrates. Riedl would keep Social Security and Medicare benefits fully intact for the bottom 40 percent of enrollees, by income. But he would enact modest benefit cuts for the top 60 percent, while gradually raising the Social Security retirement age from 67 to 69.
There would also be targeted tax increases on corporations and the wealthy, to include raising the top individual income tax rate, increasing inheritance taxes on capital gains and reducing some corporate tax breaks. Defense spending and other so-called discretionary spending that Congress must approve each year would have to be limited or reduced.
At least two changes would directly affect ordinary workers. One would be a 1-point increase in the tax that funds Medicare, with workers and employers each paying half. Another would be to tax part of employer-provided health benefits as income, which would be a de facto tax increase.
Most working taxpayers can find something in this draft proposal that would make them worse off. In a way, that’s the point: The nation’s massive debt burden can’t be fixed while exempting any large constituency.
But it’s also worth noting what’s not in Reidl’s plan. There’s no value-added tax, which would be a kind of national sales tax that would bring in tons of new revenue paid by consumers — similar to what most wealthy nations have. There’s no big corporate tax hike that could make the United States less competitive with low-tax jurisdictions and spawn new tax shelter schemes. There’s no increase in the Social Security tax. And there’s no call to cut Medicaid or destroy the social safety net that mostly benefits the poor.
Liberals may prefer to solve the problem with more tax increases and deeper cuts in defense spending, while leaving most social benefits intact. There are many options. The Congressional Budget Office regularly lists ways to approach workincluding higher taxes on corporations and the wealthy and big cuts in spending on defense, roads, airports, law enforcement, national parks and everything else the government does.
But everything comes with trade-offs, and unintended consequences could make the problem worse rather than better. If tax increases are too high, they will kill growth at a time when budgetary constraints leave less room for error than in the past. Defense cuts could backfire in a world with hot wars in Eastern Europe and the Middle East and a new axis of chaos involving Russia, Iran, North Korea and possibly China.
So far, every party plan to tackle the national debt has failed because it is politically popular with one major faction but politically toxic to another. When politicians start producing plans that no one likes, they may finally be getting somewhere.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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