The national debt is expected to reach $40 trillion in the near future if it continues to grow at its current rate. This caught the attention of the richest man in the world.
Elon Musk has joined the likes of Bridgewater founder Ray Dalio and Treasury Secretary Scott Bessent in supporting a solution to reducing public debt made famous by former Berkshire Hathaway CEO Warren Buffett.
“I can eliminate the deficit in five minutes,” Buffett said in a CNBC interview in 2011. “All I have to do is pass a law saying that whenever there is a deficit greater than 3% of GDP, all sitting members of Congress are ineligible for re-election. Now you’ve put the incentives in the right place.”
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The plan received full support from Musk. “This is the way,” he wrote in June, sharing the interview in a post on X.
Last year, the national debt increased by $2.6 trillion and currently stands at $38.9 trillion, equivalent to 124% of the economy, according to the US Treasury. Recently, the country’s public liabilities — the portion of the national debt that the federal government owes to creditors outside the government itself — surpassed the size of the economy for the first time since World War II. Plus, there’s interest payments on top of all this, which costs more than $22 billion a week, according to the Congressional Budget Office (CBO).
Buffett is far from the only one sounding the warning about public debt.
Recently, the nonpartisan think tank Committee for a Responsible Federal Budget (CRFB) warned that the average interest rate on the national debt could outpace economic growth by fiscal year 2031.
“Once interest rates outpace the growth rate… primary deficits will cause debt to grow indefinitely,” the CRFB warned in a March 9 blog post. The committee also supports the deficit target of 3% of GDP.
Although members of Congress were not very receptive to the idea of being replaced because of the public debt, a bipartisan group of representatives in January introduced a resolution to reduce the deficit to 3% of GDP.
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What limiting the deficit would actually do
In 2024, during the Biden administration, Buffett predicted that higher taxes would come for companies.
“They might decide that at some point they don’t want the fiscal deficit to be that big, because that has some important consequences. And they might not want to reduce spending too much, and then decide that they’re going to take a bigger slice of what we earn — and we’re going to pay,” he said at Berkshire Hathaway’s May 2024 shareholder meeting.
At that time, the national debt already exceeded US$34 trillion, or 122% of GDP. Buffett criticizes companies that look for the smallest loopholes possible to reduce their tax burden. Since the first Trump administration, companies have paid a maximum tax rate of 21%, compared to 35% previously. This rate was not changed by the Biden administration.
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“My best speculation is that U.S. debt will be acceptable for a long, long time because there aren’t many alternatives,” Buffett said.
