Can Anyone Solve America’s $40 Trillion Debt Problem?

0:00From KQED. On the California Report Magazine, we bring you stories about Californians helping out their neighbors, like a little store in Oakland where shoppers can walk out with one item for free. I mean, opening up a shop and giving away stuff for free, my first customer thought I was insane. Still here, so it seems to be working. I'm Sasha Koka. You can hear more Community Connections stories on the California Report Magazine podcast. This is Forum. I'm Rachel Miro, Infra Meena Kim. Maybe you've seen the news headlines about our spiraling national dead and thought, there is not enough coffee in the world to get me to click on that. I can't promise this forum segment won't hurt, but hear me out. It's not the math that's hard. It's the politics, which is why we brought in three eminent brains, all of whom can translate the economics of a $40 trillion debt for us and the politics, fear not, dear forum listeners,

1:06you are in good hands. We're here with Scott Horsley, Chief Economics Correspondent at NPR. Scott always a pleasure. Nice to be with you, Rachel. And we've also got TAL Smith, Economics reporter for the Business Section of the New York Times. TAL, welcome. Hey, it's great to be here. I'm psyched. Well, let's get started. Scott, walk me through this like I'm a golden retriever. What is the difference between the debt and the deficit? Well, the deficit is the difference between what the government collects every year in tax revenue and what it spends. Right now it's about $2 trillion a year more that we're spending than we are collecting in tax revenue. And so in order to close that gap, the government goes out and borrows money. And if you add up all the accumulated borrowing from the last 250 years, that's the debt. It was about $20 trillion as recently as 2017 and it's now doubled to $40 trillion as of

2:13last month. Okay. TAL, since 2000, we have cut taxes tilted towards corporations and high earners four times, the two bush tax cuts, the 2017 Trump tax cuts in his first term and additional tax cuts in Trump's second term, President Trump's second term. I know that this is a bipartisan problem with bipartisan causes, but is it fair to say that it's more bipartisan towards Bush and Trump or is that just politics getting in the way of understanding this? Yeah, no, it's a good question. No, I think in Scott is a great example of this. It's important to both recognize the bipartisan nature of any problem, but also when there are asymmetries, it's important to recognize and point out those asymmetries without fear or favor. And it's absolutely true that Republican administrations, Bush administration, George W. Bush did two massive

3:16tax cuts tilted towards corporations in the rich. Although there were also middle class tax cuts in there and tax cuts that helped small businesses and then Donald Trump in his first term and now in his second term is also past multi-multi-trillion dollar tax cuts that are tilted towards the rich and corporations. Now, it's also true that the Obama administration decided to extend the vast majority of the Bush tax cuts under pressure from its moderate wing and from the very powerful wing of its donor class. And that's part of what makes it bipartisan. And also the Democrats under Joe Biden in 2021 had a chance to, if they wanted to, take their slim majority, but majority nonetheless and roll back not just the Trump tax cuts, but also bore back some aspects of the Bush tax cuts from long ago. They declined to do that for many of the same reasons. And you can make political judgments, partisan judgments about what are those or good reasons or not. But that is, as you suggested in whole other conversation, what's important is point out the mathematics of that.

4:16And the math is true that if you take away those four massive tax cuts since the turn of the millennium, we'd be in a very, very different fiscal situation. Now, again, without stepping on the toes of the rest of the conversation, there's actually a very active bait in the bond market on Wall Street about how bad the fiscal situation is outside of the inflationary aspects that we're dealing with right now, which may or may not be connected to the size of the deficit itself. But the cord, your question is absolutely true that our fiscal deterioration in terms of the mathematics comes from those four big sweeps of tax cuts, yes. Well, given that you brought it up, tell, I'm sorry to bring up a rival newsroom, but there's this fabulous quote in yesterday's Wall Street Journal about the met effects on the markets of Treasury Secretary Scott Bessons planned to buy back more long term bonds. The chief global strategist at JP Morgan Asset Management says quote, if the government

5:19says it's going to raise taxes and cut spending to bring the deficit down, that's one thing. Saying you found another credit card that you haven't maxed out in your stack of 20 doesn't actually inspire confidence. Fair? Yeah, I believe that's obviously there are a lot of people high up at JP Morgan, have different titles. It sounds like there might be David Kelly at JP Morgan. Very, very, very bright guy. Not only a market's guy, but a PhD economist. No, it's a good job and far be it for me to cast too much doubt on anything that David Kelly has to say. He also knows that the federal government doesn't have credit cards like we do, the federal government has way, way more tools. The US government also sells bonds in its own currency, it borrows in its own currency. The US government can never actually go bankrupt. None of us have a money printer and we can go on and on. But it is also true that whether it's the Treasury or the Fed, the government does have

6:19limits and for a bunch of very, very good reasons, we have a multi-generational tradition not just in this country, but around the globe. Market interest rates being set, not just by central banks, but by investors and by households. You and I, people that have bonds in their IRAs or other investment portfolios deciding, hey, which rate that is being offered on the market for this bond, for this fixed income asset is enough income over time right now as I see it. So that I'll be compensated for what I think inflation will be over the near term, over the medium term and over the long term. And he's absolutely right that there's a lot of hoax, hoax, hoax, hoax that a Treasury secretary of the United States can do. He is a very, very powerful figure of the Treasury secretary. But ultimately he's going to be fighting against market fundamentals. And the Treasury secretary knows that well as a long time practitioner of markets before he took up his currency.

7:22My final declaration is that yes, it is a fair joke, like always, they're asterisk to any joke. Scott. And one of the reasons that the debt is getting more attention right now is because those market interest rates, those interest rates that investors are demanding in exchange for lending money to the federal government have been going up. So we have a sort of double whammy where we owe more money than we used to, a lot more. And we're having to pay a higher interest rate to keep bankrolling that $40 trillion in debt. And the expectation of a very big principle and a rising interest rate means that our cash payouts now to those investors who are financing our deficits, our annual deficits keep going up. And in the current fiscal year, we've already spent more than a trillion dollars just paying interest on all that old debt. So that's a trillion dollars we have to have to raise and spend before we can pay out

8:25the first Social Security check or the first Medicare bill or by the first F-15, whatever else we want to do as a federal government and as a country, we've got to pay that trillion dollar interest tab first. Scott, you know, the word investors, it's so great, it's so amorphous. Explain for us who the federal government owes all this money to pension funds, foreign governments, retirees. It strikes me as a group with genuinely nothing in common except we owe them all money. That's right. It's all of those folks and that may include many of your listeners, you know, through their own retirement accounts or if they've got a bond fund parked in a brokerage someplace, they may be in effect bankrolling the government and they're doing so because that's been traditionally a safe place to park their money and to get a, you know, not spectacular but solid and certainly iron-clad return.

9:26And those returns have been going up. Now, you know, one, another reason they're going up is for a long period of time, you know, for most of the teens, for example, interest rates were super low because as our colleagues at Planet Money said there was this giant pool of money looking for a place to park and one of the popular places to park was in US government treasuries and so there was, there was a excess savings chasing that debt and so the interest rates were really low for a really long time but that giant pool of money is not so giant anymore or at least there's a whole lot more places to park it. One place to park it now is all the money that big tech companies are borrowing to build these data centers. They're borrowing vast sums of money and that's another way that those investors, those savers can park their money so the competition for that giant pool of savings is greater now and that's another reason that the interest rates have been rising. Tell, there was a global bond sell-off Tuesday in plain English what happened?

10:35Right now, you can say right now, I'd say since spring, since the Iran war really kicked off primarily the Israel and the United States and Iran, of course, as listeners of NPR know, the list of combatants has sort of spread and is sort of vacillating from month to month. What that did is that spiked oil prices and the prices of all sorts of ancillary products have to deal with oil that are petroleum connected in some way. That's inflationary. It also disrupted supply chains. That's inflationary. It's also yet another signal of how globalization, which was, as Scott mentioned, the teens, the 2010s, globalization was thriving, the 2010s, it was thriving, the 90s, it was thriving, the 2000s in general. We've seen that sort of a regime of globalization, not only Halt, but reverse as we've seen either national economic priorities or global hostilities rise up.

11:38One of the most immediate effects that you can expect from that, according to both academic economists and global bond portfolio managers is you can expect interest rates to go up. That's what we've seen. We mentioned David Kelly at JP Morgan, Abby Yoder, who works at a different branch of JP Morgan, actually was interviewed this morning and she mentioned her take on this, which is that we wouldn't even be having this conversation, or at least we wouldn't be having this level of worry about a global bond sell-off. I'd be a global bond sell-off. If this war were not going on, now, of course, counterfactuals are hard to prove because inherently, you can't deal with them. But I thought that was a good point. That is a great point to step into the break. We are talking about the US National Dead officially topping $40 trillion record high, double what it was a decade ago. Raising some serious concerns for economists, I don't know about the rest of us,

12:38but folks, we want to hear your comments and questions. What are you worried about most? Your retirement accounts or your credit card debt or both? Email your comments and questions to forum at kqed.org. Find us on Discord, Blue Sky, Facebook, and Instagram. We're at KQED form or give us a call now at 866-733-6786. A dark night, a quiet house, but inside danger was lurking. Oh, not really. We have Xfinity Shield, so we're not worried. What if protecting your home and devices could be drama-free? Xfinity, imagine that. Restrictions apply not available in all areas. You're listening to Forum, I'm Rachel Myroh in for Meena Kim, and we are talking about the US National Dead officially topping $40 trillion with a T dollars. We're talking with experts about the current and future impacts, and whether there's a solution and the comments and questions are coming in,

13:40but we'd like to have yours. That's right. You pick up that phone now. Email your comments and questions to forum at kqed.org. Find us on Discord, Blue Sky, Facebook, Instagram, or at kqed form. Give us a call at 866-733-6786. That's 866-733-6786. Now then, who are we talking to? Scott Horsley, Chief Economics Correspondent at NPR, Tal Smith, Economics Reporter for the Business Section at The New York Times, and Maya McGinnis, President of the Committee for Responsible Federal Budget. Maya, thank you for joining us this hour. Sure, thanks for having me. Committee for Responsible Federal Budget. That has to be the longest job title in Washington, DC. What do you do all day beyond crying into your coffee? I worry a lot. I worry a lot, and we basically think we saw all of this coming.

14:41This has always been incredibly predictable because the Congressional Budget Office, which puts out very good impartial projections, you never know what's going to happen. But you can see that the structural deficits we have, the amount we are spending more than we are taking in in revenues, has been immensely predictable, not just for years but for decades. And the problem is, right now in Washington, we don't seem to address any of the problems we have, whether it's budgetary and fiscal or anything else, until the absolute last minute. And that's the worst way to get ahead of these problems. So this has gone into something that was absolutely manageable in years past, and it's kind of blown into a much bigger problem, which is going to take real work. And it's not going to be painless to get us out of this situation. So that's frustrating. I'll say, Scott, bring it to our kitchen table, our mortgage, our car payment. What is going to happen to the rest of us because of this inaction in Washington, DC?

15:43Well, you mentioned mortgage rates, for example. They climbed as of today to 6.71% to coin to Freddie Mac. And we know that mortgage rates tend to track very closely with the yield, the interest rate on 10-year government debt. So when the government has to pay more to borrow money, so does everybody else. And we know that those elevated mortgage rates have been a real drag on home sales. They're a drag on the construction industry. We're going to get the new jobs numbers tomorrow. But for example, in July, we did add some construction jobs in July, but they were almost all in the non-residential side. The housing market has really been hammered by these elevated mortgage rates. And of course, that has ripple effects because if people aren't buying houses, they're not buying washers and dryers, and they're not buying all the home improvement things down at the garden supply store. So the higher mortgage rates is having a negative effect on the overall economy. And it's very much the result of the higher borrowing costs because of all this government debt.

16:46Tell Mickey and Berkeley writes, can they reduce the deficit? Yes, if people raise taxes, it's pretty simple, but the people in power cut taxes on the rich. Does it sound like there's political will in Congress to do that? Well, right now, Republicans who are very well known for their reluctance to raise taxes in general, but also particularly on the rich, they see as job creators, infosilators of capital allocation. I don't think anybody, Scott or Maya, you can correct me if I'm wrong, but I don't think there's any seriously taken forecast that has this iteration of the Republican Congress or this Republican White House shooting for that. And I spoke earlier about how there's even hesitancy about how much to raise taxes when Democrats are in power and actually have a trifecta in Washington as well. So yeah, no, I mean, it's true that there's a sticky unmolliness to raise taxes in general,

17:50but even on the rich who just mathematically presumably can afford to have a higher tax bill. Maya? I talked earlier about how the George W. Bush administration cut taxes twice in 0103, but then the Obama administration left the majority of those tax cuts in place when they had an opportunity to let them lapse in 2012. And at that time, the Obama administration said we're not going to raise taxes on anybody making less than $200,000 a year. And then, of course, President Trump cut taxes in 2017, those have now been extended last year. And the Biden administration said, well, we're not going to raise taxes on anybody making less than $400,000 a year. So we've now basically given a free pass to everyone in America who makes under $400,000 a year and said you don't have to pay a penny more to address this $40 trillion in debt. And that's probably not a formula that's going to work. Obviously, the wealthy are going to have to pay more, but you're probably going to have to move

18:53that threshold well below the $400,000 mark, maybe below the $200,000 mark. And you know, we did that. We did that back in the George H. W. Bush administration. We did it in the Clinton administration. We raised taxes on everybody. And the world didn't end. And in fact, we managed to balance the budget at the end of the 90s. And the economy did very well during that period. My other is some who say we can just grow the economy faster than the debt. Is that just delusional? Probably, unfortunately, there's a lot of wishful thinking when it comes to fiscal policy because nobody wants to do the hard work of fixing this, which involves raising taxes and cutting spending. And I'll go back to that in a moment. But the growth rates that it would take to grow our way out of the problem are out of the realm of anything that serious people are projecting. Even if you look at the upbeat optimistic take on AI, which some people have, which is, oh, it may contribute so much to productivity, there will also be costs. There will also be

19:56changes in the economy. And it's unlikely. We've never seen the amount of growth or sustained period of time. It would take to make this go away. We have always had wishful thinking, you know, there's arguments tax cuts pay for themselves. No, they don't. There's there's arguments that don't worry just print money. That is very dangerous and leads to inflation. So whenever there's kind of the free lunch, be cautious, this is going to take changes to our policies. I also do want to address the talk about which is focused very much on tax cuts. If you look at how we got to hear from when we last had budget surpluses in 2001, about a third of it came from tax cuts, a third of it came from spending increases, and a third of it came from emergency responses. And interesting, about three quarters of those policy changes were all bipartisan. So I'm a political independent. My group is bipartisan. I just left a retreat where we are saying, wouldn't it be interesting in policy discussions if we didn't even say the words Republican and Democrat

20:59because we spend so much time in partisan boxes instead of the policies. But I think I want to just kind of lay out that. And if you look at our growth and spending as a share of GDP, two thirds of the fiscal deterioration since we had budget surpluses actually comes from the growth and spending because our spending as a share of GDP has grown so significantly much, much higher than the average for the past 50 years, whereas our taxes as a share of GDP is closer to the average that's been for the past 50 years. Now that's a policy choice. It's okay. We need to look at both sides of the budget when we think about how we might fix it. Scott, Chery and Glendale raises a question. I don't think anybody has mentioned just yet this hour. Can we get the national debt under control without cutting social security and Medicare? Well, those may be the force that, well, social security in particular may be the forcing mechanism here because we know that there's a demographic trend that's working against us on social security.

22:02You know, we have fewer working-age people now paying into social security for every retiree who's drawing benefits. And that ratio is moving in the wrong direction as 10,000 baby boomers retire every year as our birth rates continue to decline. And now recently under the Trump administration as we choke off immigration. So we're going to have more obligations through social security than we have revenues coming into the system. That's already the case right now. We have a little bit of a cushion because there was a period when the baby boomers were paying in before they all retired and we're wearing out that cushion and that cushion is going to go away somewhere around the latter part of 2032. And when it does, if Congress doesn't do anything, then everybody who relies on social security benefits is going to get a 22% benefit cut automatically. That's the way the law is right now. So, you know, even though Congress tends to drag its feet to the last minute, there is a deadline. It's on their horizon and they're going to have to address it.

23:05And they're probably going to have to address it in one of three ways, which is to cut benefits, to raise payroll taxes, which bankroll social security, or some combination of the three. And it's probably going to be the latter of those, some combination of the three of the two. And so that's going to be the forcing mechanism. But when Maya talks about spending and the growth in spending as a shared GDP, a lot of that is spending that's on autopilot through programs like social security, Medicare, some of the other entitlement programs that are not the things that Congress votes on every year. They're just cruising along. And unless we address them, that ratio is going to continue to be out of whack. Well, with that, I think we should go to the phone lines now because people are chomping at the bit to get into this discussion. Why don't we go first to Charles in Sunnyvale? Hi, Charles. Hi, I'm calling because I have a question. I mean, we've been talking a bit about taxing both normal Americans and wealthier Americans. And I'm curious to know how we would be able to

24:09tax wealthier Americans more effectively because they don't make income the same way that wage workers tend to. Who wants to take this one on, Tal? Sure. One of the great resources for this is actually Maya's organization. They have a actual, you know, in the same way that we think of vocabulary banks, they have revenue banks where there's all sorts of programs. And it's not just Maya's organizations. There's all sorts of non-parasant think tanks that work on tax and certainly center left and left of center think tanks that work a ton on progressive taxation that would mostly be directed at the rich. And there are trillions and trillions and trillions and trillions of dollars over a 10-year budget period, which is sort of the usual way that budget wants calculate revenues. That could be used and put towards not only sort of reducing deficits, but also maybe taking some share of those revenues and directing them towards sort of democratically agreed upon pro-social things, maybe a child tax credit, maybe a child care policy and on and on. Those things

25:10aren't for me to decide, but it's definitely there are funds out there that we could do, but it's one of the uncomfortable realities of our political system for some it's comfortable that donors and both parties are very powerful and those donors tend to be rich people. And even in blue states that are considered quite progressive, those that donor class already feels quite over tax and they do in some cases pay high marginal tax rates. And so when the rubber hits the road and you have those sort of distributional trade-off moments, a lot of affluent people make compelling cases that actually they are already are taxed quite high and they don't want to be taxed any higher. And you see the swing votes in Congress, he'd what they say and lo and behold, we end up in a situation where those tax revenues don't go up as much as they would in a counterfactual situation. And so I'll just end and past off to another panelist here by saying there's a lot of appropriate talk

26:10here about the sort of ins and outs of how much cash is going to the bucket and how much cash is coming out of the bucket of the federal government. But if we are going to continue on this status quo path that seems to be pretty sticky, of course Maya is fighting the fight to make it to unstick it. But if we continue to go down this path, we must must must must have a almost virulent focus on containing both inflation and inflation expectations. Because if you don't, that's exactly when investors and US households, right, us as a collective, the wisdom of the crowd says, oh, well, inflation is up and so interest rates are going to be higher and we're going to compensate people for that higher inflation. So, you know, there's there's this part B, sorry, part A that we're talking about. But as long as we're being suboptimal in this part A situation that we need to focus much more on different ways to make sure that we can contain inflation and, you know, the sort of corollary of the conversation at the G20 right now.

27:11And then markets more broadly and somewhat in politics is the way that we are failing to for regular everyday Americans, not just bond investors, right, regular everyday Americans. We're failing to control inflation and that really is at the heart of the problem. Could I could I just jump in my question because it's so important and I have I'll give you three specifics. But one thing we do is we favor capital over wages when it comes to taxation and we should equalize that because low income people don't have trust funds. They are making their money from wages and yet we subsidize a lot of the cap of the returns on capital in various ways. Number two, our favorable treatment of inheritances. So, we have huge tax breaks for inherited wealth and something called step-up basis at death where capital gains aren't taxed when people pass, pass away. You could change some of the things there that are definitely very, very regressive in their effect. Finally, all the tax breaks that we have credits, deductions, exemptions, exclusions, we lose about two and a half trillion

28:15dollars a year or 25 trillion over that 10-year budget window we look at. Those tax breaks are incredibly regressive favoring the well off. So, those are three ideas of areas we could make reforms if you want to have progressive taxation. I just knew we were going to get into class warfare at some point this hour. But that said, I don't think that is. I don't think there's a right or wrong and what is the right distribution of taxation. But if one wants to have more progressive tax policies, those are places you can look. I don't think we should be talking about class warfare. I don't think we should be talking about, you know, that we pit ourselves against each other when it comes to fiscal issues much more than there's one one area. I'd say that there's kind of been an unfair area. It's generational where we have six dollars that goes to every senior for everyone that goes to people under 18. And I think what we should be thinking about is how to have fiscal policy that we craft for the longer run to sustain the economy and be generationally fair. But I hope I hope there's no warfare. I hope we can all ratchet down the talk of how to solve some of these

29:19problems we've known about for so long. I just always think of Warren Buffett's line, you know, if there's class warfare, my class is winning. Fair enough. Well, let's take another phone call because I think we've got time for another Don in Menlo Park. Hi, Don. Yeah, good morning. Thank you for this. I have my comments is that I'm in my mid 40s and I'm already assuming that social security is not going to be available to me. And so I'm investing heavily in my 401Ks and all of those market-based retirement funds. And so hearing that we're at like $40 trillion that and how it affects, you know, all these rates and stuff like that, it's very concerning because I'm like, I feel like I'm already pegged at not getting social security. And now my other option for retirement is might be at risk as well. I'm only I'm really grateful because I also have a pension available to me. Through my job. So there is that at least. But my question is, you know, when we talk about reducing

30:21$40 trillion, that's a number of people really understand for one. But is it possible for the federal government to go down to zero debt? I mean, in our homes, we want zero debt, but do we want zero debt for the government? Or is there like a reasonable number that we can sustain that's not zero? Because I think when we think 40 trillion, we can't get to zero. Like I can't even imagine that. So thanks. Scott, can you answer that in 90 seconds? Because that's about how much time we have to liberate? Sure. I would say we do not have to pay the debt down to zero. We just need to stop growing the debt so so rapidly. So that that's there there is definitely a sustainable, reasonable level of federal debt that we could manage that is well above zero, but but also well below below 40 trillion. And I'd also just say, I don't think you should think social security won't be there for you. Even if even if Congress did nothing, you know, 78% of your benefits would still continue to come in. So it's not going away. It just has a crack in it that we need to patch. But I don't think we

31:26should throw up our hands. People in their 40s and even people in their 20s shouldn't throw out their hands and say social security won't be there for me. What they should say is I want to make sure we shore up this very successful program. So it is there for me at least in some way. Oh my goodness. I think that makes me feel better. I hope it makes her feel better too, Scott. We are talking about the US National Debt officially topping $40 trillion a record. Hi. And we are talking with Scott Horsley, Tal Smith, and Maya McGinnis. Email your comments and questions to form at kqd.org because there's still a little time to get those comments in or give us a call at 866-733-6786. But whatever you do, don't touch that dial. A dark night, a quiet house, but inside danger was lurking. Oh, not really. We have Xfinity Shield, so we're not worried. What if protecting your home and devices could be

32:29drama free? Xfinity. Imagine that. Restrictions apply not available in all areas. This is for my Rachel Miro in Fermina Kim and we are talking this hour about the US National Debt officially topping $40 trillion with a $D dollars. We're with Scott Horsley Chief Economics Correspondent for NPR, Tal Smith, Economics Reporter for the Business section of the New York Times, and Maya McGinnis, President of the Committee for a Responsible Federal Budget. And the comments are also rolling in, so I thought I might start this segment with a few of them. We'll just fly through guys, so don't jump in until I finish with Wendy here. Brian on Blue Sky writes with a bessent running the dollar into the ground. Should we not be looking at what monetary system he is setting up seems to me blowing up our debt is a plan rather than a result. Paul writes, Republicans often say the government should be run more like a family. What I don't understand is that their tax cuts seem to me to be the equivalent of going to your boss and saying,

33:33I can't pay my bills, please cut my wages. Wendy writes, I'm worried that my savings will be lost to inflation, that we will be like Argentina years ago. What can I do to at least keep up with inflation in a safe way? Tal, do you want to try to take that on? Oh yes, guys, people are so worried. And I understand whether they are worried. There are certain things though to be worried about and other things that I think need to be put in perspective. The national debt, you know, has got explained somewhat earlier, is the stock of total outstanding bonds. Right? The debt bonds credit, we use these things interchangeably in a way that I think confuse people. So I just want to sort of lay out some structural things here. So the national debt, which is the big scary thing that we're talking about, $40 trillion. It's also just the total outstanding bonds that the US government has sold on the treasury market currently held by these large investors that we've been talking about as well as everyday savers. Some of those treasury bonds

34:34are short term debts, some of it's long term debt, but I think one of the failures to be self-critical here about my own profession and maybe even about the sort of broader macro world is we talk about the national debt as this big, bad, scary thing. And then we talk about the treasury market as correctly as the linchpin of the global economic system. And we talk about the rates offered by the treasury market as the risk-free rate, not meaning not anybody in Washington, not anybody being political. Traders and believe me, you know, Maya and Scott, both no bond traders, some of them are deeply apolitical. And they're probably not even tuning into programs like this. I'd love if they're a bit more civically involved. They call it the risk-free rate. And so again, so that's all confusing, but I think it's very important to put it in context because when godly, I have to give credit to him, is this aristocratic economist from Britain that laid out what he

35:34called sectoral balances and this hard to grasp and important to grasp concept that public deficits and public debt, the corollary of that, the inverse of that is private wealth. So public deficits by definition are federal surpluses, but it's also true what Scott and Maya have been pointing out that, you know, we collectively give our money to the government and then the government has a pie, a bucket, whatever it now is you want to use a funds to give. And it is true that if we are paying more and more interest payments to bondholders, that that is money that could be going to all sorts of other things, to national defense, to the sort of programs that Maya mentioned, you know, people might be interested in, you know, more dollars directed towards young families, you know, instead of maybe so many of the dollars going just towards boomers, etc., etc. So it's complicated, but it's important to ignore that complexity because otherwise we end up in this de-contextualized, I guess, to use an internet term, doomer conversation where we just get scared

36:39when we see, you know, a big bad number like 40 trillion. And so, you know, I'm sure Scott and Maya have their own takes to add in here, so I'll stop myself there. But there was a caller earlier and then there was one comment there in the sort of flashbang roundup that you did that I think were just concerned about the number itself. And I think it's less about the number and as Scott put it earlier, more about the rate of its growth and how we manage that and making sure they're freed up dollars for the other priorities that we have as well as the economy continues to grow. Scott, you know, I'm wondering a question that is also popping up in comments I haven't had the chance to get to read yet. Can we get out of this debt without getting out of the war with Iran? Well, the war with Iran is, it tells us pushing up inflation a little bit is driving up the cost of energy, but you know, the actual cost of the war itself is not a major contributor to our debt,

37:40even as costly as the wars in Iraq and Afghanistan were. Those are not the huge drivers of our debt. They didn't help by any means, but it's easy to point to the war as the big bad. Obviously, there's lots of policy reasons to question the decision to go to war with Iran, but it's not the major driver of our debt. It would help if gasoline was a dollar gallon cheaper, sure. And if inflation were lower, that would probably take a little bit of the sting out of the interest rates, but the war is not the major cause here. I will say just in reference to what Tal was saying about the bonds as a lynchman. I'm old enough to remember that brief window of time when we were actually running a federal surplus in the late 90s and in the very beginning of the George W. Bush administration. And there was actually serious concern of what would happen if the federal government not only ran a surplus but paid off

38:41all of its debt and no longer had to issue treasuries on a regular basis. And what would the rest of the world financial, you know, solar system revolve around if it didn't have the sun of U.S. treasuries? Luckily, we solved that problem in short order. That's a, I appreciate your optimism there, Scott, or your positivity is what I should say. But so zero debt has its own problems, for the global financial markets and so forth. But 40 trillion is not ideal. Maya, there are various suggestions about how to fix social security just to come back to that. Some say raise the retirement age, others say stop paying full benefits to people wealthy enough not to need them or make high earners pay in on more of their salary. What's your preference? Well, my preference is that we do something instead of nothing. We have had the trustees of the program warning about this that it was going to be insolvent since 1984. It has been decades

39:45and our ability of our political to just punt and avoid hard problems. Or in fact, it would have been so easy if we'd fixed it in those earlier years. Nobody would have even noticed the changes. So we have six years till there are cross the board benefit cuts, which is inconscionable. Let's do it right away. Frankly, of those solutions, we're probably going to have to do a balanced package or a little bit of all of them. We could slow the growth of benefits for high income people and protect them for people who depend on the program. We should raise the retirement age for people because we're living much longer. Social security retirement age is almost 67. It used to be that life expectancy was 62 when the program started. Now it's into your late 70s and early 80s. So you can't live in retirement for that long without structuring changing the program. And we should look at lifting the payroll tax cap because people don't pay it in above a certain amount and brawning the base back to what I was saying earlier. We tax wages and awful lot compared to capital income and that will be a place. I do want to put some context on the overall fiscal discussion

40:49because our debt as a share of GDP is almost at the highest record it's ever been in. It will be in four years past where we were just after World War II. So no, we don't want to pay off the debt. We don't even need to bring the debt down, but we do need to make sure it's not growing faster than the economy as it currently is. The single fastest part of the budget growth is interest payments on the debt. At a trillion dollars, we spend more on interest than we do on national defense. We spend more on interest than we do on all federal spending on children. That just kind of shows you how messed up the priorities have become because of the borrowing of the past. And the fact that our deficits as a share of the economy, which is how you want to think about it, are at record levels at higher than any time other than an emergency, shows you that even when the economy is strong, our political system no longer can be responsible fiscally. So I think the context of where we are is dangerous. I think the context of where we are going is very dangerous. And it has economic risks. It makes everything more expensive. It means we're not as able to respond to future emergencies.

41:54But at this point, it also has national security risks while we should be thinking about policies as we are in a grudges with China as we should be thinking about how to deal with any disruptions that AI may create. And we should be thinking about generational fairness and avoiding a fiscal crisis. So there's always excuses why we shouldn't do something. But again, I wish we could get back to a political system that didn't wait till the last minute to fix all these these challenges that are clearly that we can see for years and decades ahead of when they would hit. We shouldn't wait until the last minute. Oh my gosh. You're preaching sense, Maya. Is there some way we can elect you in the office? Oh no, no, no. No, but that is I will say it's hard to be a politician because we expect them to give us things. And this is a moment where we need to be talking about how we're going to fix some of these things. Yeah, yeah, I hear that. You're listening to form. I'm Rachel Miro in for Meena Kim. And I think we've got time for a phone call with I'd of Berkeley. Hi, I'd.

42:56Hi, hi. Good morning. Well, this is really big scam. Social security is paid by the American people. From the first day, do you go to work to the day? Day retire or die? Also employers like myself pay equal amount for social security for each employee. I own big business in the Bay Area for about 30 years. I paid over a million dollars in terms of my own money for my employees. This is a scam by the Republican Party. Also in 1984, Reagan cut down taxes from 78% to 28% and he imposed taxes and social security for the first time. So it is double taxation. This is a scam by the Republican Party and even worse, but from right now on is all of the people around him. We have to fight it with all of our means. This is pretty sad situation. They're taking money from our pocket, they're taking money from our people together. I also suggest we should have not only tax reform,

43:56which we have ceiling on the world. Nobody needs that petroleum. What do you do with it? Your body only was seven bucks in chemicals. Really, I'm very, very upset about the shape of the country today. We have to fight it with all of our means. Thank you. Thank you so much for all of those comments. Scott, I really appreciate that you know, he was bringing in the perspective both of right, a business owner and also someone who remembers the history. Right. Part of our challenge is that social security has always been structured as you pay in during your working years and you draw out in your retirement years. But as Maya points out, you know, the ratio of retirement years to working years has changed. As I said earlier, the ratio of people who are currently working and paying into the system to the number of retirees has changed and most people will draw out more in social security than they pay the end during their working lives. Part of the reason the public support for social security is so strong is

45:02because it is structured in that way as sort of an enforced personal savings plan. But the finances of it don't actually work that way and we need to be grown up and recognize that. Tell, I guess I'm throwing all the listener comments your way. Peter writes, economist Paul Krugman estimates the amount of old taxes that are not collected each year at around $600 billion with a B dollars yet IRS audits and enforcement are down under Trump as he encourages tax fraud. What can be done to correct this important aspect? Well, I love Paul. One of my first jobs at the New York Times that started here in 2018. I was a newsletter producer for Paul. And this is back before we had all these fancy, fancy or sort of AI-enabled newsletter systems. That was back like, you know, when you really had to build a brick-bite brick. So it's great that he is still a Fallen Paul's work. Yeah, I mean, it's absolutely true. I believe Scott actually did a story about this recently that there's a ton of

46:04leakage from the fact that the IRS has been cut. When you cut tax enforcement down, you shouldn't be surprised when tax revenues decrease. And my, I probably know, is the numbers better than I do, but I believe over an estimated five or 10-year period, if we have this sort of lack of enforcement or lacks enforcement, that it adds up to, if not at least at trillion, maybe many trillions of dollars lost. But again, I feel like I'm a little bit of a skunk at the party here. I don't want to say that fiscal doesn't matter. That debt doesn't matter. That deficits don't matter. They do matter. But we have to be careful about trapping ourselves in a single variable analysis. Just one last thing here. In the 1990s, right, which people look back upon quite fondly, not just because of the computer boom, but because of the, a lot of economic growth, a lot of wage growth, then we also had a big movement towards deficit reduction in Washington, something that many people are clamoring for now. Here's the thing, the average interest rate on the 10-year treasury. Now, so not even just

47:06the fed rate, not even just the central bank rate, which is the baseline rate, but the one that can be affected by markets, the 10-year treasury, which affects that mortgage, that car loan, that consumer loan, that credit card loan, it was 6 percent much, much higher than it is right now. Before the Iran War, we were at 4 percent interest rates. So the baseline interest rate for the entire economy and the low deficit 1990s was 6 percent. Now, that's for a bunch of other reasons. This is probably not going to have time to get into. It's about what Alan Greenspan was doing at the time in terms of the Fed Chair. There's this thing called a neutral rate that central banks think of, which is wow, the economy is running really hot, and that's good, but we also have to make sure it doesn't run too hot. One of the ways that central banks do that is by raising interest rates, right? So it can get complicated, but one of the things that we can do if we want to have what Maya absolutely wants, which is sort of better fiscal propriety, but also have the lower interest rates that allow us to get homes again more cheaply and have car loans that don't create just absolutely burden some car notes at the end of each month, is to again find ways, whether it's through competition,

48:08through management and market prices, through all sorts of ways. There's all sorts of white papers and brilliant walks that we get into this stuff, we have to think about how to control inflation, because even if we tamp down on deficits, if we ignore what's happening on the base level in the real economy, very, very sadly, and I'm doing this genuinely, we'll have not finished the job, because all the people calling in that are worried about the financial futures and about paying the bills and about saving for, you know, for later and saving for Christmas presents for their kids, they're not going to get the purchasing power of their dollars going as far as they'd like to. So that's just a very important thing that I wanted to sort of leave readers, not case readers, not readers in this case listeners with, as I sort of wrap up my end of things. Jan writes, I have a problem with your guest calling Social Security in entitlement. Congress stole money from Social Security and never paid it back. That money is my retirement funds that I paid. It's not an entitlement. If Congress can steal funds from Social Security, why can't they pay back what they stole? This is so infuriating. Where you're the one who

49:14called it entitlement? Scott, I forget. I'll take it on because I would have, because I think that is a technical term. Social Security right now is being repaid back for the money that was put in the trust funds and lent to the rest of the government. Now Social Security has a cash flow deficit and the government is repaying all of that money. It's coming out of the general revenues. So there's nothing to be furious about. That money is all going back. It was just invested in super safe treasuries. And so I think there's a lot of scare mongering around Social Security, people scare people because it's a really important program that the majority of seniors depend on. That's why doing nothing to fix it is so damaging. I also want to just mention for the previous caller who talked about the taxes that aren't paid. It's such an important point. There are hundreds of billions of dollars that are lost each year in uncollected taxes. And it's actually one of the few areas of the federal government where if you put in another dollar in turn technology or IRS

50:14collection, you will get more than that back. I am not a free luncher. I don't pretend that putting money into things usually generates more. But for tax compliance, it does. And so while I am not a fan of Paul Krugman for the one reason that he used to use his column to call people names, which is something I find the president currently does. And I just think that we should get that out of our discourse. But he's very smart. And on this problem of the tax gap, I absolutely agree with him. And there's more we could do to collect that. On the spending side, there is waste and abuse in the federal government. Neither of them are enough to close the fiscal gap that we currently have. Though we're still going to have to look at these real policies of Social Security, Medicare, Defense, Tax Policy, all the parts of the budget. Well, Maya, you get the last word, but I want to thank all three of you, Scott Horsley from NPR, Tal Smith from the New York Times. And of course, Maya McGinnis from the Committee for a Responsible Federal Budget. This has been a sobering conversation, but when I am glad you all joined us with here on forum, I'm Rachel Mayerow. Thanks again.

51:23Funds for the production of forum are provided by the Generosity Foundation and the members of KQED. A Dark Knight, a quiet house, but inside danger was lurking. Oh, not really. We have Xfinity Shield, so we're not worried. What if protecting your home and devices could be drama-free? Xfinity, imagine that. Restrictions apply not available in all areas. Support for forum comes from San Francisco Opera. On the very day, Simone Book and Negra is elected as leader of the Republic of Genoa, tragedy strikes. His beloved eyes and their infant daughter vanishes. Now 25 years later, Bokanegra has a chance to reunite with his daughter while he works to bring stability to a fractured republic. This fall, dive into a world of political injury and familial reconciliation with Verdi's Simone Book and Negra, September 12 through 27, SFOPERA.COM. A Dark Knight, a quiet house, but inside danger was lurking.

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