(A practical menu with estimates and a fairness test)
1) The Deficit (and how it differs from the Debt)
The federal budget deficit is the gap between what the U.S. government spends in a single year and what it collects in that same year. If outlays exceed revenues, we run a deficit; if revenues exceed outlays, we run a surplus. In recent years, the United States has been spending roughly $7 trillion annually while collecting around $5 trillion in taxes and other receipts, leaving a trillion-plus annual hole.
The national debt, by contrast, is the running total of all past deficits (minus any surpluses) that the government has financed by issuing Treasury securities. Think of the deficit as the year’s shortfall, and the debt as the mortgage balance that accumulates when we borrow to cover that shortfall.
Why does the deficit matter if the United States issues its own currency and cannot be forced into “bankruptcy” in the conventional sense? Because persistent, sizable deficits add to the debt, which then raises interest costs—money we pay simply for the privilege of having borrowed in the past. As the debt grows and interest rates fluctuate, annual debt service can crowd out other priorities: infrastructure, education, research, or even tax relief targeted to households that need it. Put simply: careless deficits today shrink the room for smart investments tomorrow.
2) A Practical Menu of Deficit-Closing Options (with 10-year estimates)
I thought I would take a run at preparing a possible menu of policy options—revenue raisers and spending reforms—organized for yield, feasibility, and fairness. The figures are, at best, ballpark 10-year estimates derived from mainstream scoring logic (CBO/IRS/Tax Policy Center–style methods) and rounded for clarity. The goal is not to pretend there is a single “right” number, but to show the order of magnitude and allow one to mix and match a package that totals, say, $4–7 trillion over a decade—enough to materially narrow the deficit while improving the structure of the economy.
2A. Revenue Options
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Tax capital gains and qualified dividends at wage-like rates for ultra-high incomes
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Mechanism: For AGI above, say, $1–2 million, align long-term capital gains and qualified dividends with ordinary income rates; maintain the 3.8% NIIT; preserve deferral inside retirement accounts.
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10-year revenue: $0.6–0.9 trillion.
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Rationale: High earners capture outsized capital income; harmonizing top rates reduces preferential treatment that undermines progressivity and encourages tax gaming.
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End “step-up in basis” for ultra-large estates (realization at death)
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Mechanism: Tax embedded gains above a large exemption (e.g., $5–10 million per person) at death rather than erasing them. Provide deferrals/installments for illiquid family businesses and farms.
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10-year revenue: $0.4–0.6 trillion.
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Rationale: The “buy-borrow-die” strategy lets the very wealthy avoid ever realizing gains; realization at death closes that loop while shielding typical homeowners.
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Billionaire/Centimillionaire Minimum Tax (true-up on very low effective rates)
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Mechanism: A surtax or mark-to-market-style minimum on extremely large unrealized gains with loss carryforwards, valuation safe harbors, and liquidity accommodations.
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10-year revenue: $0.3–0.5 trillion.
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Rationale: A tiny fraction of filers account for enormous untaxed appreciation; a minimum tax assures a baseline contribution even when realizations are postponed.
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Tighten pass-through preferences (199A, S-corp wage games, NIIT parity)
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Mechanism: Cap or refine §199A; ensure that high-income pass-through profits bear Medicare/NIIT consistently; curb abusive low “reasonable compensation” in S-corps.
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10-year revenue: $0.2–0.35 trillion.
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Rationale: Aligns treatment of business income across legal forms; reduces arbitrage without harming genuine small businesses (protected via thresholds).
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Corporate base broadening + enforceable minimum
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Mechanism: Sunset boutique credits, strengthen rules that limit profit shifting (GILTI/BEAT-style), and backstop with a solid U.S. minimum.
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10-year revenue: $0.4–0.7 trillion.
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Rationale: Makes the code more neutral and internationally coherent; ensures multinationals booking profits abroad still contribute fairly.
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Modernized IRS enforcement & compliance tech
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Mechanism: Better data matching (1099-K, beneficial ownership), analytics for complex partnerships, targeted audits where the tax gap is largest.
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10-year net revenue: $0.15–0.30 trillion.
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Rationale: Raises money without changing anyone’s statutory rate; treats honest filers more fairly by narrowing the compliance gap.
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Carbon Fee with Household Dividends
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Mechanism: A fee starting around $25/ton, rising by $10/year, with 70–80% of proceeds rebated per capita to protect low- and middle-income households.
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10-year gross revenue: $2.0–2.5 trillion; net to deficit after dividends and transition: $0.3–0.6 trillion.
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Rationale: Aligns incentives with climate goals, improves energy security, and still nets federal revenue while cushioning families.
Subtotal: Potential Revenue (choose a mix):
Low-end package (1+2+4+6) ≈ $1.35T
Middle package (1+2+3+4+5+6) ≈ $2.05–2.95T
Ambitious package (1–7) ≈ $3.35–4.95T (after carbon dividends)
2B. Spending Reforms (Focus on Prices, Not Care)
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Health-care price reforms (site-neutral payments; anti-consolidation; reference pricing)
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Mechanism: Pay the same rate for the same service regardless of site when clinically appropriate; strengthen antitrust against hospital consolidation; benchmark payments to efficient levels.
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10-year savings: $0.8–1.4 trillion.
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Rationale: U.S. health costs are driven largely by prices, not utilization. These changes reduce program spending without cutting medically necessary care.
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Drug payment reform (negotiation expansion; biosimilar acceleration)
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Mechanism: Broaden the list of negotiated drugs, speed biosimilar entry, and tie initial prices to international references for monopoly launches.
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10-year savings: $0.2–0.4 trillion.
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Rationale: Delivers lower out-of-pocket costs and lower federal outlays simultaneously.
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Pharmacy Benefit Manager (PBM) transparency & spread-pricing ban
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Mechanism: Require pass-through of rebates; ban spread pricing in Medicaid; ensure auditable, transparent contracts.
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10-year savings: $0.1–0.2 trillion.
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Rationale: Removes opaque middle-men margins; improves price signals to patients and plans.
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Defense procurement discipline
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Mechanism: Retire low-utility legacy platforms; prioritize the systems we actually deploy (drones, air defense, cyber, logistics); buy multi-year to cut unit costs; minimize earmark-driven projects.
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10-year savings: $0.4–0.7 trillion.
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Rationale: Ukraine and other conflicts demonstrate the power of nimble, networked capabilities over sheer tonnage; we can maintain deterrence while spending smarter.
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Program integrity & anti-fraud (SSA, HHS, DoD, UI, COVID overhang)
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Mechanism: Identity verification, data matching, recovery units, and real-time analytics to intercept improper payments.
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10-year savings: $0.1–0.2 trillion.
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Rationale: High-return investments that protect beneficiaries and taxpayers.
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Debt-service optimization
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Mechanism: Transparent terming strategy; opportunistic buybacks and exchanges during market dislocations.
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10-year savings: $0.05–0.15 trillion.
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Rationale: Not a game-changer, but every basis point saved on trillions of debt compounds into real money.
Subtotal: Potential Savings (choose a mix):
Core package (1+2+4) ≈ $1.4–2.5T
Expanded (1+2+3+4+5) ≈ $1.6–2.9T
Max (1–6) ≈ $1.65–3.05T
2C. Illustrative Packages
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Pragmatic Center Package (~$3.6–4.8T):
Revenue (1,2,4,5,6) = $1.75–2.85T
Savings (1,2,4) = $1.4–2.5T
Total 10-year improvement: $3.15–5.35T (pick mid-points ≈ $4.3T)
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Ambitious Fairness-First Package (~$5–7T):
Revenue (1–7) = $3.35–4.95T
Savings (1–5) = $1.6–2.9T
Total 10-year improvement: $4.95–7.85T (middle ≈ $6.4T)
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Prices-Not-Austerity Package (~$3–4.5T):
Revenue (1,2,3,6) = $1.35–2.3T
Savings (1,2,3) = $1.1–2.0T
Total 10-year improvement: $2.45–4.3T (middle ≈ $3.4T)
These packages do not rely on across-the-board benefit cuts or middle-class tax hikes. Instead, they attack price excess, loopholes, and preferential treatment at the top while shoring up compliance and modernizing procurement.
3) Who Pays What Today (and Why That Matters)
To weigh fairness, it helps to recall the income distribution across taxpayers:
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Bottom 40% average AGI ≈ $18,000; deductions often wipe out income tax liability; primary burden is payroll taxes and consumption taxes.
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Lower-Middle 30% average AGI ≈ $63,000; effective federal income tax ≈ 6–9% (plus payroll).
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Upper-Middle 20% average AGI ≈ $155,000; effective federal income tax ≈ 13–17%.
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Top 9% average AGI ≈ $420,000; effective rate ≈ 22–25%; pay ~35% of income taxes.
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Top 1% average AGI ≈ $2.5M; effective rate ≈ 26–30%; pay ~25% of income taxes.
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Top 0.01% average AGI ≈ $25M; effective rate ≈ 31–34% on realized income, yet much wealth accumulates unrealized (untaxed until sold or death).
A central problem is that capital gains and dividends often face lower rates than wages, and unrealized gains (the lion’s share for the ultra-wealthy) face no annual tax at all. The step-up in basis at death then wipes out the accrued gains for heirs. The buy-borrow-die approach—borrowing against appreciated assets to fund living expenses—lets the ultra-wealthy live largely tax-free in income-tax terms. A fair deficit plan must therefore address capital income, especially at the very top, while sparing the middle.
4) Why These Options Are Fair (and Economically Sensible)
4A. The Fairness Test
A policy set is fair if it satisfies three conditions:
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Ability to Pay: Those with the greatest capacity contribute more.
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Horizontal Equity: Similar households are treated similarly regardless of legal form (wages vs. pass-through tricks).
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Social Return: Savings come from lower prices and less waste, not from degrading essential services.
The proposed package meets these tests:
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Capital income alignment (Options 1–3) corrects a long-standing asymmetry where a hedge-fund principal or billionaire shareholder pays a lower marginal rate on the bulk of their income than a surgeon, engineer, or teacher pays on wages.
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Pass-through and corporate base broadening (4–5) address form arbitrage and profit shifting—the definition of horizontal inequity.
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IRS modernization (6) raises revenue by narrowing the tax gap—rewarding honest filers.
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Carbon fee with dividends (7) prices a real externality while rebating most revenue to households; it’s progressive in net effect.
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Health-care price reforms (1–3 under spending) knock down excess prices rather than care itself. The U.S. pays more than peers mainly because prices are higher, not because patients use more care.
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Defense procurement discipline trims low-value projects while funding what actually strengthens deterrence.
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Program integrity targets fraud and leakage, the least controversial form of “cut.”
4B. Economic Efficiency
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Harmonizing capital and wage taxation at the top reduces lock-in and gamesmanship without touching retirement accounts or typical home equity.
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Ending step-up reduces distortions that keep capital tied up solely for tax reasons.
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Pass-through tightening discourages inefficient business form choices driven by tax arbitrage.
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Corporate minimums reduce the incentive to park profits in tax havens, leveling the field for domestic firms that don’t have global tax departments.
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Health-care price reforms deliver the same service at lower cost—the very definition of efficiency.
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Defense rebalancing prioritizes capabilities used in modern conflicts, yielding better security per dollar.
4C. Incidence and Protecting the Middle
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The bottom 70% of taxpayers—who together hold less than 20% of national wealth—are protected by focusing on capital income at the top, closing loopholes, and lowering health-care prices that hit family budgets directly.
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Dividends to households from the carbon fee ensure low- and middle-income families are net-neutral or net-positive while still raising federal revenue.
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Small business safeguards—thresholds, safe harbors, ample transition time—ensure that complexity and cost do not fall on genuine Main Street firms.
5) Addressing Common Objections
“Taxing capital more will crush investment.”
Empirically, investment responds to a range of factors—demand outlook, technology, financing costs—not only top statutory rates. The proposed changes aim at very high incomes and large unrealized gains, while preserving R&D credits, expensing for genuine investment, and sensible loss carryforwards. The macro effect on productive investment is likely modest, while the benefit to equity and revenue is substantial.
“Realization at death will force family business fire sales.”
High exemptions, installment plans, and deferrals for illiquid assets address liquidity. The vast majority of small, closely-held firms would be unaffected; the rule targets concentrations of financial wealth.
“Carbon fees are regressive.”
Dividends fix that. A substantial majority of households can be fully or more-than-fully compensated while preserving emissions incentives.
“Cutting defense weakens deterrence.”
The proposal is not a cut to readiness; it’s a re-allocation away from low-utility legacy systems toward the capabilities that have proven decisive—air defense, drones, cyber, logistics, munitions, and resilient command-and-control.
“Price reforms in health care will hurt hospitals.”
The intent is to align payment with efficiency and value, not to underfund necessary care. Site-neutral rules, antitrust action against monopolistic pricing, and PBM transparency put guardrails around excess margins, not clinical care.
6) Implementation Principles and Guardrails
To maximize results and minimize disruption:
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Phase-ins and grandfathering where appropriate (especially for capital-income changes and estate rules).
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Strong safe harbors for small businesses, family farms, and illiquid estates.
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Independent scoring & triggers: tie certain provisions to deficit targets (e.g., if growth underperforms, a portion of scheduled tax relief pauses; if savings exceed expectations, automatic rate relief or deficit reduction continues).
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Transparency & simplicity: consolidate boutique credits; publish clear, annual progress reports on deficit reduction, health-care prices, and procurement savings.
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Bipartisan firewall: make IRS modernization, program integrity, and antitrust enforcement non-negotiable infrastructure, not political footballs.
7) A Sample, “Ready-to-Go” Package (~$5.8 trillion over 10 years)
Grand total: ≈ $5.8T in deficit improvement over 10 years.
This scale of adjustment meaningfully bends the debt trajectory, reduces interest costs, and protects household budgets by attacking excess prices and preferential tax treatment rather than cutting core benefits.
8) Conclusion: Fix the Math, Fix the Incentives
America’s deficit is not a moral failing; it’s an incentive problem. We subsidize the wrong things, price the right things badly, and maintain tax preferences that send capital and ingenuity chasing loopholes instead of productivity. The package outlined here aims to fix the math and the incentives:
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Tax capital income at the top more like wages; stop erasing lifetime gains at death.
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Close the easy games (pass-through arbitrage, profit shifting, noncompliance).
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Price carbon and return dividends to households.
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Cut prices, not care in health programs; buy what works in defense.
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Use triggers and transparency so results build credibility year after year.
None of this requires austerity for the middle class, and none of it asks the bottom of the distribution to do more with less. It asks those with the most capacity—and the most access to preferential rules—to contribute in line with the benefits they derive from a stable, advanced economy. It insists that the public sector buy value, not vendor influence, and that we call a price a price, even when a powerful industry sets it.
Deficits are choices. This plan chooses a fairer, smarter, and more future-oriented path—one that preserves the room to invest in our people and our shared prosperity while restoring confidence that public finance in America is not an accident, but a deliberate act of stewardship.
