The Big Beautiful Bill - a letter to my Senators

 Please share the following in a Dear Colleague letter.

The June Treasury Bulletin is hot off the presses. Using information in this document, along with information from the Federal Reserve Survey of Consumer Finance, I have calculated the distribution of ownership of high yield debt assets, which include mutual funds, individual bond holders, US savings bonds and bonds held by individuals and foreign entities in tax shelter countries - not including those funds held by governments. 

The gross debt is $36 trillion dollars. Of that, $7 trillion is held by foreign governments, state and local governments and federal accounts not including retirement funds (which can be attributed to individuals in Social Security, federal retirement and related health care trust funds - which is another $5 trillion). 

Long term investments and bank assets hold $8 trillion. The top 10% of the $11 trillion dollars in federal retirement accounts hold 54% of these funds. The top 1% hold 54% of that 54%, so 27% in the top percent and 26% in the remaining 9%. The top 0.1% hold 54% of that 27% comes out to 14% - or roughly $1.7 trillion for 154 thousand households earning more than $3 million per year.

The top 10% of households hold 77% of high yield assets, with the top 0.1% holding 46% of these assets. The total amount of debt backing these assets is a bit over $15 trillion.  The top 0.1% therefore hold $7 trillion of this debt - which is the engine of capitalist investment in debt backed funds - or a total of $10 trillion - a third of the $29 trillion of the national debt held by households.

Put another way, the efforts by members of the Senate to reduce the deficit (and ultimately the debt) will reduce the ability to leverage it to create assets - which means that assets that are created will be riskier to the economy at large. When Alan Greenspan warned against paying down the debt in 2001, it was this pool of money he was talking about.

Applying these formulas to the top 001% - or 1,500 households, results in debt holdings of roughly $5 trillion in both high yield and long term assets. These individuals pay about $80 billion in taxes annually. If the obligation for repaying the national debt is a factor of income taxes paid, these households owe $1 trillion, so they hold over $3 trillion more than they owe. Note that the IRS reports that these families earn $347 billion per year, of which all but $23 billion is from salaries. The rate of return on debt assets (not including assets not backed by the national debt) is about 5.5% of capital assets (excluding business returns). This shows that the debt ownership calculation offered here  for the top 1500 households is within reason.

The remainder is earned from capital and business income - which is taxed at preferred rates. These rates are in the permanent law - they are not adjusted in the Big Beautiful Bill. Perhaps they should be. Ultimately, it would secure these assets to do so. Reducing debt by raising taxes on capital income is the only way to reduce the debt without hurting the economy at large (as this simply reduces speculation). As they are by far the chief beneficiaries of this debt reduction - by trillions of dollars - they should shoulder most of the burden. Note that when the debt is paid down, the households holding this debt will get substantial payouts from doing so. Heads they win, tails we lose.