If America was a household, the household makes around 50,000, brings in 5 trillion in receipts from taxes and it spends 70,000. It spends 7 trillion on social programs, the military, etc. And we have household debt of 400,000. Now, the bad news is when the parents die, the kids can't escape that debt. They inherit the debt.
In today's office hours, we discuss how concerned you should be about a $40 trillion national debt, how we think about keyman risk and equity value of property media, and the trade-offs of living with your parents to save money. Question number one comes from Oscar Gamble's hair on Reddit. When I was in business school, the primary concern was the size of the national debt. The year was 1993 and the debt was 4.3 trillion. We were freaking out. Now, as we reach 40 trillion in debt, how serious is it? And why is it different from 1993? Okay, so first off, some data. On August 18th, 2026, the national debt passed $40 trillion for the first time. To put that into perspective, when this listener was in business school, the debt was 4.3 trillion. So, it's grown almost 10-fold since then. And the economy has grown less than five times over in the same period. So, even on an inflation or economic growth adjusted basis, the deficit has exploded.
I think it was 4 trillion. I think George Washington, George Bush was 4 trillion. Now it's 40. And I would argue it was kicked off by George Bush and his kind of key consigliere, Vice President Cheney, saying deficits don't matter. And W convinced the American public that we could cut taxes and go to war and that everything would still be fine. And since Bush to Trump, we've added another 36 or 37 trillion. The 40 trillion is the gross number, the part we owe to outside investors, banks, pension funds, foreign governments who agree to loan us money to fund our deficits. And about 32 trillion or what is it, 40 trillion, that's about, I don't know, 120 or 130% ratio to our economy. So, we're getting to sort of Japan and Italy like levels. And worse, we're adding 2 trillion a year.
If America was a household, the household makes around 50,000, brings in 5 trillion in receipts from taxes and it spends 70,000. It spends 7 trillion on social programs, the military, etc. And we have household debt of 400,000. Now, the bad news is when the parents die, the kids can't escape that debt. They inherit the debt. And it's just at some point, you know, at this point we're borrowing money to pay for the interest on the debt of money we borrowed previously. And it gets even worse. Interest payments now eat up a record 18.5% of everything the federal government collects. In some, almost one in five dollars that you're paying in taxes goes to paying interest on the debt of money we borrowed because we weren't taxing people enough and we were spending too much. Do we need to cut spending or raise taxes? All roads lead to the same place. The answer is yes.
The older record was 18.4% in 1991. The difference in 1991 was that number was starting to fall. And also much of that was because of greater interest rates. So we know it's a problem. And what happens is eventually, and we're seeing this now, people go, you're no longer as safe an investment America as we thought. There's some risk that you'll either inflate your way out of it with a weaker dollar or god forbid at some point you actually might risk default or the economy will slow down because you'll have to make such drastic cuts that you'll have a difficult time paying it back. So lenders are requiring more money to take the risk of loaning to Americans or loaning to America to finance this debt which increases the amount of interest rate and unfortunately could inspire sort of a downward spiral.
So what are some solutions? We know this is a problem. According to the IRS, roughly $700 billion a year in taxes that people legally owe simply never gets paid or collected. People often call it, I believe, the tax gap. Or is it the budget gap? Anyways, whatever it is, money that should be collected and isn't. And the greatest tax cut in history was not the Trump tax cuts. It was Trump neutering the IRS because the incentives are now, especially if you have a complicated tax filing and you're wealthy, is to be so aggressive and cheat because the chance of being audited are so low. The audit rate on millionaires fell more than 70% between 2010 and 2019. Yale's Budget Lab found that cutting 20 billion from the IRS budget actually adds about 263 billion to the deficit. So in some, under the auspices of saving money, we're losing 10 times the amount we're saving.
Also I think we should do away with the tax deduction or lower tax rates for capital gains. Budgets reflect values and our values right now, or our tax system reflects our values. Our values are that sweat is less noble than money. And that is, the money money makes gets taxed at a lower rate. I think a maximum of 22.8 whereas current income or sweat, the money you make from working gets taxed at 37%. We should go back to the era of Reagan and raise capital gains taxes to what ordinary income is. You could even potentially cut that rate as long as you equalized it. The tax gap, raising taxes or raising, elevating capital gains, and then we're just going to have to cut spending, folks. My idea is GLP-1 for every household and go after the 12,000 or 13,500 per capita spending on healthcare which across 350 million people basically comes to almost what our deficit is each year.
Or if you were to try and get it down to where the rest of the G7 is at 6,500, you take 6,000 dollars in healthcare savings times 350 million people, then you have your $2 trillion a year in tax gap. Now, could you do that overnight? Is it realistic? Probably not. But you probably need to free spending, go after health care, normalize tax rates, collect the taxes owed, and slowly but surely start to restore fiscal sanity, which should take our interest rates down, which should inspire an upward spiral of fiscal sanity in this country. We have been here before. Our national debt was huge after World War II as a percentage of GDP. Again, it was pretty high in the early 90s. And there's an opportunity here to do what the Clinton administration did and actually get to a point of break even or surplus. You wouldn't even need to get back to surplus. You would just need to make sure that the growth in the deficit is lower or growing slower than the growth in the economy.
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Question number two.
