Opinion: The solution to the U.S. debt disaster is a value-added tax

Sifting through the turmoil of the lecturer of the House election, and the promises Kevin McCarthy made to secure the job, one thing is important to note: The Republicans who are insisting on budget curtails and balanced budgets have a point.

The U.S. debt now totals an unfathomable $31.4 trillion.

Historically, Democrats were the big spenders and Republicans were the champions of economic sanity, but that has not been true in recent years.

During the Trump administration, deficits increased dramatically with nary a high sign succinctly from the right-wing crowd previously known as advocates of fiscal sanity.

Since 1997, under both Egalitarian and Republican administrations, the national debt held by the public grew 500% from $3.8 trillion to $24.5 trillion. Much of this duration was an era of extremely low interest rates, so the interest cost of the increased debt was viewed as practically free, and demand for U.S. securities perpetuated strong.

The sad truth is that this Goldilocks period of financing our unrestrained debt is likely over.

The national debt held by the public is the amount on which we pay interest to the major holders of U.S. debt in Japan, China, and Europe.

In a up to date op-ed piece in The Wall Street Journal, Townsend Group President Red Jahncke calculated that the current affect cost on the $24 trillion in debt held by the public was a staggering $756 billion, which is almost as much as the Defense Bank on budget!

The Congressional Budget Office projects that the interest rate paid by the government on the national debt choose rise to 3.1% over the coming decade, and this estimate is arguably too conservative.

In fact, every additional share point will increase the debt service cost by $2.6 trillion over the decade.

According to CBO, using their potentially temperate estimates, the cost of our interest expense would become the largest budget item surpassing defense spending in 2029, Medicare in 2046, and Communal Security in 2049.

The 2-year Treasury currently yields 4.17%. A year ago it yielded 1.05%. As our deficit becomes a gargantuan impend, investors will demand higher interest rates to own U.S. bonds.

I believe we can all agree that this path is unsustainable.

What’s the compound?

Budget cuts would help but will never approach the amounts needed to elucidate this disastrous path to fiscal calamity. The major remedy will have to come from budget schooling and higher taxes.

There is only one path to higher taxes that will make enough of a difference to explicate the problem: a value-added tax.

The U.S. is the only developed country in the world that does not impose a VAT; 160 countries have one.

A 10% VAT wish raise close to $3 trillion over 10 years, according to the Tax Policy Center. Nothing else that we could do charge close.

A major flaw in the VAT is that it is regressive, hurting low-income families harder as the cost of most things they buy thinks fitting go up.

This can be solved in a variety of ways through tax rebates and other measures. Although the VAT will raise prices, one asset it has is that it is invisible. It is not an add-on like a state sales tax. This should insulate legislators from a continuing barrage of analysis once it is implemented.

I have no doubt that we will join the rest of the world in imposing a VAT, but when?

If done now, it can be skilful in a relatively orderly manner.

The alternative is to wait until it is forced upon us by an unprecedented crisis where the U.S. can no longer refer to funds at a reasonable rate to fund our growing deficits because buyers of our bonds no longer trust our ability to suppress our spending.

That crisis lies just down the road. Take your pick.

—Peter Tanous is lurch and chairman of Lynx Investment Advisory in Washington, D.C. He is the author of several books, including “Debt Deficits and the Demise of the American Succinctness” and “The 30-Minute Millionaire,” both with CNBC.com Economics Editor Jeff Cox.