One solution to the crippling debt problem is implementing a value-added tax.

In 2024, the interest on the national debt will be $870 billion, which is more than the amount we spend on defense, which is the largest discretionary item in the budget, as per the nonpartisan Congressional Budget Office.

One-third of the personal income taxes paid by Americans goes towards servicing the national debt, which is primarily held by Japan, China, and the United Kingdom.

The CBO predicts that the issue will intensify.

Under recent Republican administrations, the budget profligacy has been as bad as under free-spending Democratic administrations.

Our high interest rates will persist for a longer time than anticipated due to the demand for higher rates from our debt buyers, such as Japan, China, and the U.K., reflecting our declining creditworthiness and indifference towards our growing debt.

This is already happening.

This year, it was predicted that the central bank would lower interest rates six times in 2024, as suggested by Fed Chair Jerome Powell.

Those optimistic expectations have faded with the wind.

Our mounting debt can contribute to the persistence of high interest rates, making it unlikely to receive a single rate reduction.

When will Congress address this issue?

If history is a guide, Congress will not address the mounting deficit until a major crisis forces lawmakers to act. The crisis will likely take the form of a spike in interest rates that the Fed will be unable to control, while buyers of our debt demand higher interest rates.

Higher interest rates pose a threat to the economy and may prompt Congress to act.

What can Congress do?

The options are few and hard to swallow.

Since a significant portion of our budget is dedicated to mandatory obligations, such as Social Security, Medicare, and Medicaid, reductions in spending are limited. In fiscal year 2023, mandatory spending accounted for $3.8 trillion out of a total budget of $6.1 trillion. Of the $1.8 billion in discretionary spending, the defense budget consumed almost half, with interest on the national debt following closely behind. Notably, interest expense has now surpassed defense spending.

No member of Congress will entertain a discussion of reducing Social Security, as it is a politically sensitive topic that could lead to job loss.

To balance the budget, it is necessary to increase revenue.

To decrease the deficit, like other developed countries, implement a value-added tax.

In most countries, the VAT is a tax that is added at different stages of production, rather than at the point of sale. As a result, it is not noticeable since it is not an additional fee that appears on the receipt.

The CBO predicts that a broad 5% tax could generate $3 trillion in revenue over the next ten years. However, critics argue that this tax is both inflationary and regressive, meaning it would negatively impact low-income Americans the most. To address this issue, a tax credit could be introduced for lower-income earners.

Will Congress act promptly to solve the issue, or will we have to wait for a significant crisis before action is taken?

Sadly, I'm betting on the latter.