If Donald Trump were some Hiroo Onoda–style holdout from the old Soviet Union, carrying out a decades-long communist plot to destroy America, it’s hard to imagine what he’d be doing differently from what he’s doing every day. He’s wrecking the military in a deranged and completely pointless war on Iran; he’s obliterating our hitherto world-beating university system; he is gravely undermining the administrative state; he is tearing up the alliance structure with other rich nations that has underpinned American power since 1945; and he is dealing tremendous damage to the American dollar.
Thanks in part to Trump’s tariffs, inflation is up, and so the Federal Reserve has decided to hike rates for the first time since 2023. Meanwhile, Trump’s unhinged threats against NATO allies have made foreigners reluctant to lend to the American government, with France and Canada in particular unloading much of their holdings of American debt. As a result, interest rates on government bonds are at their highest levels in nearly 20 years.
Tax cuts, Trumpflation and the associated interest rate increases, and Trump’s harebrained geopolitical chaos all make for a toxic budgetary combination. The national debt is skyrocketing, with more than $2 trillion being added this year alone. Interest payments now consume $1.2 trillion a year—more than the military.
A wealth tax would be a particularly good way to address the deficit.
It’s led to a return of a very old trope: that as soon as the next Democratic president is in office, the time for budget cuts will be at hand. We’ll have to “tighten our belts” and address our “out-of-control spending,” just as Bill Clinton and Barack Obama once did.
This is not true. It would be far wiser to address any debt problem on the revenue side of the ledger.
To begin, America has always been one of the most lightly taxed nations in the rich world. Our total tax take at all levels of government is about 32 percent of GDP. (The principal effect of such low taxes is not more disposable income, but more vital services that have to be inefficiently financed out of pocket. But I digress.) Denmark’s tax take, by contrast, is 53 percent of its economy. Twenty percent of American GDP is about $6 trillion. So if we get just a third of the way to Denmark’s level, we can reduce the deficit to zero.
A wealth tax would be a particularly good way to address the deficit. A big reason why the deficit is so high is that rich people mobilize to install Republicans in office, who then cut taxes on the rich, causing borrowing to increase. Those required bonds are then overwhelmingly bought up by the rich, who are paid lots of interest for doing so. Rich people should contribute their fair share, not get subsidized for shirking their tax duty.
And that’s just the start of ways to raise funds that don’t involve any program cuts. Democrats could attack the immense waste resulting from Trump’s corruption and incompetence—for instance, the administration spent some $9.5 billion on paid administrative leave last year (a 435 percent increase), as part of DOGE’s lunatic attack on the administrative state. That’s only one small example, but it’s a safe bet that with Trump in the White House, similar money pits can be found all over the place.
DOGE’s assault on federal workers illustrates another potential saving: properly staffing the government. Even before Trump, there were barely more federal workers than there were in the late 1960s. Cheaping out on staff means many government functions are outsourced to expensive and frequently corrupt private contractors, who already outnumbered federal workers 2-to-1 when Trump took office. Bringing as many of those functions as possible back in-house would save money.
Speaking of staffing, Democrats could also repair the IRS. As The New York Times reports, the agency estimates that about $700 billion in owed taxes went unpaid in 2022, what it terms the “tax gap.” The IRS was supposed to publish the 2023 estimate by now, but the Trump administration has suppressed it instead. With Trump opening huge new loopholes with his Big Beautiful Bill while clawing back $80 billion in IRS funding and firing more than 31,000 IRS agents, the tax gap is certainly much, much wider than it was under President Biden.
But fully zeroing out the deficit probably won’t be necessary. It’s very likely that if Trump can be forced out of office after his next attempted putsch in 2029, investors around the world will return to dollar assets in significant numbers. The reason is that nobody else has even attempted to replace the dollar as the global reserve currency, and there’s no sign of it happening. The only entities in a position to do it are China and the EU. In order to do so, however, China would have to give up capital controls and its immense trade surplus, which it shows no sign of doing, while the EU would have to borrow on a monstrous scale to produce the requisite quantity of assets. That isn’t happening either.
America may never gain back all of the manifold advantages it possessed in January 2025. Freedom of navigation in the Middle East might be gone for good. Foreign nations and investors will likely be lending to America more reluctantly from now on. But America will still be a rich nation, endowed with tremendous resources, and an enormous capacity to tax that has barely been tapped. Nothing—especially not welfare state programs—will need to be cut in order to clean up Trump’s mess.
