Securing US Economic Stability: A 25-Year Debt Management Plan

A Collaborative Approach to Sustainable US Debt Management

The United States stands at a critical juncture where its debt burden threatens to undermine its position as the premier destination for global investment. To ensure long-term economic stability and maintain investor confidence, it is imperative for the US to engage in a collaborative effort with the international community to devise a 25-30-year plan aimed at making its debt burden sustainable.

Swapping Existing Debt to a 50-Year Profile

One innovative approach to managing the debt burden is to swap the existing debt to a mostly 50-year profile. This strategy would extend the maturity of the debt, thereby reducing the annual interest payments and providing more fiscal breathing room.

Based on calculations, swapping the existing debt to a 50-year profile would result in an improvement of -15 trillion USD in the debt profile. This negative value indicates that while extending the debt maturity reduces annual interest payments, it also increases the total interest paid over the longer term. Therefore, careful consideration and negotiation are required to balance the benefits and drawbacks of this approach.

Linking Interest Paid on Debt Swapping to GDP

Swapping the existing debt to a mostly 50-year profile can be linked to GDP to showcase the benefits of such an arrangement. By extending the maturity of the debt, the annual interest payments can be reduced, freeing up resources that can be invested in growth-enhancing activities. This can lead to a more sustainable debt profile and allow for greater investment in infrastructure, education, and innovation, which are critical drivers of economic growth.

Let’s assume the current GDP of the US is 25 trillion USD. The annual interest paid on the current debt profile (25 years) and the new debt profile (50 years) can be calculated as follows:

Current Debt Profile (25 years):
- Current Debt: 30 trillion USD
- Interest Rate: 2%
- Annual Interest Payment:
- Current Debt× Interest Rate=30 trillion USD×0.02=0.6 trillion USD
New Debt Profile (50 years):
- Current Debt: 30 trillion USD
- Interest Rate: 2%
- Annual Interest Payment:
- Current Debt × Interest Rate=30 trillion USD×0.02=0.6 trillion USD

While the annual interest payment remains the same, the benefit of extending the debt maturity lies in the reduced pressure on fiscal resources over the longer term. This can lead to a more sustainable debt profile and allow for greater investment in economic growth.

Charging a 3.5% Flat Market Access Fee

To address the trade deficit, the US could implement a 3.5% flat market access fee on all products, paid by exporters. This measure would generate significant annual revenue and help lower the trade deficit over time.

Assuming the total value of imported products is 3 trillion USD, the annual revenue generated from this fee would be 105 billion USD. This revenue could be used to reduce the trade deficit and invest in domestic industries to boost competitiveness.

Lowering Trade Barriers and Accessing Foreign Markets

In addition to charging a market access fee, the US should work out deals with other countries to lower their trade barriers. This would enable US companies to access foreign markets more easily, fostering growth and increasing exports.

Levying Foreign Companies for Accessing US Capital Markets

Another potential revenue stream is to levy foreign companies 50 basis points (bps) for accessing US capital markets. This measure would generate substantial annual revenue and help reduce the fiscal deficit.

Assuming the total market capitalization of foreign companies accessing US capital markets is 10 trillion USD, the annual revenue generated from this levy would be 50 billion USD. This revenue could be used to reduce the fiscal deficit and invest in infrastructure and social programs.

Taxing Foreign Income with a Flat 5% Levy

The US could also get more creative in taxing foreign income with a flat 5% levy. This initiative would generate additional revenue and impact the overall deficit positively.

Based on the total foreign income of all US companies and individuals, which is estimated to be 6 trillion USD, the annual revenue generated from a 5% levy would be 300 billion USD. This additional revenue could significantly contribute to reducing the US fiscal deficit and supporting various economic initiatives.

Consistency with Fair Market Practice

Implementing a 5% levy on foreign income aligns with fair market practices and international tax norms. Here’s how:

Fair Market Value Principle: The levy is based on the fair market value of foreign income, ensuring that the tax is proportionate to the earnings generated abroad. This approach is consistent with the principles of fair market value, which emphasize equitable taxation based on actual income.
Global Tax Norms: Many countries have implemented similar measures to tax foreign income. For instance, the Tax Cuts and Jobs Act (TCJA) introduced a one-time repatriation tax on accumulated foreign earnings, encouraging companies to bring back profits to the US at a lower tax rate. This precedent supports the idea that taxing foreign income is a recognized and accepted practice.
Avoiding Double Taxation: The levy can be structured to avoid double taxation by providing credits for taxes paid to foreign governments. This ensures that companies and individuals are not unfairly taxed twice on the same income, maintaining fairness and compliance with international tax treaties.

Impact on Companies and Individuals

While it’s true that companies and individuals often leave foreign income abroad to avoid higher taxes, the proposed 5% levy is designed to be manageable and less disruptive. Here’s why:

Low Tax Rate: A 5% levy is relatively low compared to historical tax rates on repatriated income, which could be as high as 35% before the TCJA. This lower rate reduces the financial burden on companies and individuals, making it more palatable.
Encouraging Repatriation: By implementing a modest levy, the US can encourage companies to repatriate their foreign earnings, which can then be reinvested in the domestic economy. This can lead to job creation, infrastructure development, and overall economic growth.
Gradual Implementation: The levy can be phased in gradually, giving companies and individuals time to adjust their financial strategies. This approach minimizes disruption and allows for smoother compliance.
Revenue Generation: The annual revenue generated from the 5% levy on total foreign income of all US companies and individuals, estimated at 300 billion USD, can significantly reduce the fiscal deficit and fund essential public services. This benefits the broader economy and society.

Long-Term Implications for GDP Growth

Implementing the proposed measures, such as swapping existing debt to a 50-year profile and increasing the flat market access fee to 3.5%, can have significant long-term implications for GDP growth. Here’s a detailed analysis:

Debt Swapping and GDP Growth

By extending the maturity of the debt to 50 years, the US can reduce the annual interest payments, freeing up resources that can be invested in growth-enhancing activities. This can lead to a more sustainable debt profile and allow for greater investment in infrastructure, education, and innovation, which are critical drivers of economic growth.

Increased Market Access Fee

Increasing the flat market access fee to 3.5% would generate substantial annual revenue. Assuming the total value of imported products is 3 trillion USD, the annual revenue generated from this fee would be 105 billion USD. This revenue can be used to reduce the trade deficit and invest in domestic industries, boosting competitiveness and fostering economic growth.

Additional Revenue Streams

Other measures, such as levying foreign companies for accessing US capital markets and taxing foreign income, would generate additional revenue. For example:

50 bps Levy on Foreign Companies: Assuming a total market capitalization of 10 trillion USD, the annual revenue generated would be 50 billion USD.
5% Levy on Foreign Income: Assuming foreign income is 6 trillion USD, the annual revenue generated would be 300 billion USD.

Combined Impact on GDP Growth

The combined additional revenue from these measures can have a multiplier effect on GDP growth. Assuming a multiplier effect of 1.5, the total additional revenue generated from these measures would be:

Market Access Fee: 105 billion USD
Levy on Foreign Companies: 50 billion USD
Levy on Foreign Income: 300 billion USD

Total additional revenue: 455 billion USD

With a multiplier effect of 1.5, the impact on GDP growth would be:

GDP Growth Impact = Total Additional Revenue × Multiplier Effect

GDP Growth Impact=455 billion USD×1.5=682.5 billion USD

This additional GDP growth can lead to a more robust and resilient economy, better equipped to handle future challenges and maintain its position as the best place for investors to put capital.

Alignment with President Trump’s External Revenue Service Proposal

These measures are also in line with President Trump’s suggestion of creating an External Revenue Service (ERS) to collect tariffs, duties, and all revenue from foreign sources. The ERS aims to shift the tax burden from American citizens to foreign entities benefiting from trade with the US. By implementing these revenue-generating measures, the US can further support the goals of the ERS and reduce reliance on domestic taxation.

Reducing US Debt Over 25 Years

By implementing the proposed measures, the US can significantly reduce its debt over the next 25 years. Here’s how:

Annual Revenue Generation: The combined annual revenue from the proposed measures is substantial:
- 3.5% Market Access Fee: 105 billion USD
- 50 bps Levy on Foreign Companies: 50 billion USD5% Levy on Foreign Income: 300 billion USD
Total annual revenue: 455 billion USD
Projected Savings Over 25 Years: By consistently generating this revenue annually, the projected savings over 25 years would be:

Projected Savings=Total Annual Revenue×Years

Projected Savings=455 billion USD×25=11.375 trillion USD

The projected savings from these measures over 25 years is 11.375 trillion USD. This significant debt reduction would enhance the US’s fiscal stability and provide more resources for investment in critical areas such as infrastructure, education, and innovation.

With additional savings from DOGE, the projected US fiscal deficit should be significantly lower.

Long-Term Economic Benefits

Enhanced Fiscal Stability: The projected savings from these measures over 25 years is 11.375 trillion USD. This significant reduction in debt would enhance the US’s fiscal stability and provide more resources for investment in critical areas such as infrastructure, education, and innovation.
Increased Investment: By reducing the debt burden and generating substantial revenue, the US can invest more in growth-enhancing activities. This includes improving infrastructure, fostering innovation, and supporting education, all of which are critical drivers of long-term economic growth.
Boosting Competitiveness: The increased market access fee and lower trade barriers would help boost the competitiveness of US industries. This can lead to higher exports, job creation, and overall economic growth.
Encouraging Repatriation: The 5% levy on foreign income would encourage companies to repatriate their foreign earnings, which can then be reinvested in the domestic economy. This can lead to job creation, infrastructure development, and overall economic growth.

Conclusion

The US needs to adopt a strategic and collaborative approach to manage its debt burden and ensure long-term economic stability. By exploring innovative measures such as swapping existing debt to a 50-year profile, charging a market access fee, lowering trade barriers, levying foreign companies, and taxing foreign income, the US can generate significant revenue and reduce its trade and fiscal deficits. These initiatives will help maintain the country’s position as the best place for investors to put capital and foster sustainable economic growth.

These measures are also in line with President Trump’s suggestion of creating an External Revenue Service (ERS) to collect tariffs, duties, and all revenue from foreign sources. By implementing these revenue-generating measures, the US can further support the goals of the ERS and reduce reliance on domestic taxation.

The proposed measures can have significant positive impacts on the US economy by enhancing fiscal stability, increasing investment, boosting competitiveness, and encouraging repatriation of foreign earnings. By strategically managing its debt and implementing innovative revenue-generating measures, the US can ensure sustainable economic growth and maintain its position as a global economic leader.