In the run-up to the upcoming election cycle this November of our semiquincentennial anniversary, the core reality of American politics is once again in the spotlight: “It’s the economy, stupid.”
To ensure American economic security for the next 250 years and beyond, it’s time for President Donald Trump and his economic team led by Secretary of the Treasury Scott Bessent to think outside the box and outline a big and bold program that incorporates five key targets: (1) price level stability reflecting an inflation rate of 2% per annum, (2) economic growth reflecting an annual real GDP growth rate of 3%, (3) an unemployment rate of 4%, (4) a sustainable and resilient safety net for the working poor, and (5) zero deficit budgets for the federal government.
The new paradigm for American economic security would have ten prongs.
First, the existing gold holdings of the U.S. Treasury would be revalued to reflect the current market price. Treasury holds 261.5 million troy ounces of gold valued at a legacy price of $42.22 per ounce. Upon revaluation via a presidential executive order, Treasury would redeem the existing gold certificates held by the Fed, and the net proceeds would be deposited in a new Fiscal Stabilization Fund account at the Fed. So, the Treasury would be able to unlock the true value of its gold holdings without triggering inflation.
Assuming a revalued gold price of $4,222 per ounce (the current gold price is $4,300 per ounce as of Sept. 21), the net revaluation proceeds that would be deposited in the newly created FSF account would be about $1.1 trillion.
Second, in a twist on the old British Consols and American Consols that were prevalent during the early days of the republic, Bessent would offer to convert at par on a voluntary basis all of the existing federal debt into perpetual participation certificates on which, in lieu of specified interest payments, annual dividends would be paid in an aggregate amount equal to 1.25% of nominal GDP of the immediately preceding fiscal year.
The annual dividend payments on the perpetual participation certificates would be free of federal income taxes. The conversion would be free of federal income taxes. Likewise, trading gains and losses on the certificates would not be included in federal taxable income.
If the conversion offer is accepted by current holders of U.S. government debt, the federal debt service burden would be slashed by almost 70%, and significantly reduce the upward pressure on the federal budget deficit.
For example, in fiscal 2025, the U.S. government had total debt outstanding of $37.6 trillion (representing 124% of nominal GDP of $30.4 trillion) at an annual interest cost of about $1.2 trillion. If this debt were converted into perpetual participation certificates, the annual servicing cost would have been only $360 billion (1.25% of FY 2024 GDP of $28.8 trillion) — a saving of $840 billion.
Third, Trump would outline a 5-year asset divestment and privatization program to be led by Bessent, designed to raise about $1 trillion in net proceeds. Such a program would also help staunch the drain on the federal government’s exchequer. Accordingly, surplus federal real estate properties would be disposed of on a fast-track basis, and government-controlled entities such as NASA, Amtrak, U.S. Postal Service, Fannie Mae, and Ginnie Mae would be privatized on an arm’s-length, commercial basis with the help of major American investment banks. The net proceeds of these divestments would be deposited by the U.S. Treasury in its Fiscal Stabilization Fund at the Fed.
Fourth, Trump and Vice President JD Vance would outline a recalibrated American grand strategy to refocus on the defense of the homeland and safeguarding a streamlined U.S. sphere of influence encompassing the other countries in the Americas, plus the three island states in the western Pacific (Palau, Marshall Islands, and Micronesia), which have compacts of free association with the United States. Legacy security commitments with respect to Europe, Asia, and the Middle East would be phased out in an orderly process over a five-year period. Specifically, Vance would stress the Trump administration’s commitment over the next two years to terminate U.S. involvement in the war against Iran and the proxy war with Russia with respect to Ukraine. Successful rebalancing would ensure strategic solvency and leaner defense budgets.
Fifth, Trump, Vance, and Bessent would unveil a completely revamped and simplified three-tiered tariff structure covering U.S. imports of goods and services: 0% for the three COFA countries (to reflect their status as de jure protectorates); flat 5% for the other countries of the Americas; and flat 8% for the rest of the world. There would be no more destabilizing tariff wars. The revamped tariff structure on imports would be consistent with the recalibrated American grand strategy. Assuming imports continue to be about 14% of nominal GDP, the revamped tariff structure would yield revenues of about $250 billion per year and would encourage onshoring and nearshoring of critical manufacturing supply lines to enhance national security.
Sixth, Trump would announce a bold stroke to cut the Gordian knot on immigration policy that is hopelessly entangled in national identity, demographic profile, and economic impact issues by offering a simple solution. Instead of the current immigration morass, there would be a limit on annual immigration to ensure the population growth rate is between 0% and 0.5%. The immigration channel will be allocated 70% to a skills-based pool, and 30% to other (such as non-skilled, low-skilled, and humanitarian categories).
By focusing on needs rather than wants, the revised immigration policy would become part of the solution to ensure economic growth (sustaining labor productivity), an actuarially sound social benefits net (social security and Medicare), and a demographic profile consistent with social stability. Reflecting the fact that the birth rate in the United States at 1.6% is below the replacement birth rate of 2.1%, annual immigration is likely to be about 1 million to 1.5 million people, which is consistent with America’s absorptive capacity.
Seventh, Trump and Vance would outline a vision for a rebalancing of the fiscal relationship between the federal government and the states that would reflect the spirit of the Founding Fathers.
The federal burden for funding the Medicaid program would be shifted to the states over a five-year period. Likewise, the deductibility of state and local taxes in determining individual and corporate federal income taxes would be phased out over a five-year period.
Unwinding and sunsetting these subsidies would reduce the drain on federal revenues.
To partially mitigate the fiscal impact on the states, the federal government would provide annual unrestricted block grants to the states in an aggregate amount equal to 0.25% of the nominal GDP of the immediately preceding fiscal year. So, the states would have an assured revenue stream tied to the performance of the overall American economy.
Eighth, Trump and Bessent would pledge to eliminate the looming fiscal insolvency threat to Social Security and Medicare and to ensure a sustainable and resilient federal social benefits safety net for America’s working poor.
Accordingly, they would propose an approach that recognizes the reality of the new demographic landscape reflecting increased longevity of Americans, and corrects the egregious regressivity of the current payroll tax structure that undergirds the financing structure of Social Security and Medicare programs.
As Americans are living longer, the retirement age for Social Security and Medicare would be increased to 70 over a 5-year period, and the benefit structure would reflect the step-up in the retirement age.
To correct the regressivity of the existing payroll tax structure, which funds the social benefits safety net, the current income cap would be raised from $184,500 to $1 million, and the new payroll tax structure would be indexed to inflation. The new payroll tax structure would take effect on Jan. 1, 2027, resulting in a significant early boost in federal revenues.
TRUMP’S CHOICE: DEFEAT CHINA WITH DATA CENTERS OR COMMIT STRATEGIC SUICIDE
Ninth, the trio of Trump, Vance, and Bessent should shed their image as partisans of the wealthy and embrace a new image as champions of America’s working poor. Accordingly, they should propose that individuals with incomes of $38,680 or less would be exempt from all federal income taxes and payroll taxes. The same would apply to corporations with net incomes before taxes of $38,680. The tax exemption threshold would be indexed to inflation. Removing the yoke of taxes on the first $38,680 of earnings will turbocharge the American economy for the working poor.
Tenth, to guarantee America’s fiscal and economic resilience, the proposed Fiscal Stability Fund would have a target size equal to 10% of the immediately preceding fiscal year’s GDP. Accordingly, once the zero-budget-deficit target is reached, budget surpluses would be allocated to the FSF until the 10% of GDP target is reached. America can look forward to a glorious tricentennial.
Samir Tata is the founder and president of International Political Risk Analytics, an advisory firm based in Reston, Virginia, and author of the book Reflections on Grand Strategy: The Great Powers in the Twenty-first Century.
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[ H/T Washington Examiner ]
