Warren Buffett thinks there’s only one way to reduce national debt

As Washington keeps splurging way above its means, billionaire investor Warren Buffett warns that record federal debt won’t pay for itself.

In Berkshire Hathaway’s last annual shareholder meeting, Buffett predicted that it's taxpayers—and in particular corporations—that will foot the bill in the end.

“With present fiscal policies, I think something has to give. And I think higher taxes are quite likely,” he said.

That's a natural consequence of the government’s growing fondness to finance its agenda using debt with little consideration for long-term consequences.

Policymakers “may decide that someday they don’t want the fiscal deficit to be this large because that has some important consequences," he said.

Buffed added: "And they may not want to decrease spending a lot, and they may decide they’ll take a larger percentage of what we earn, and we’ll pay it.”

Since last June, the U.S. national debt has been growing by $1 trillion roughly every 100 days—with interest payments at a record $658 billion.

The true cost of Uncle Sam’s credit addiction

In the fourth quarter of 2023, the national debt hit $34.7 trillion—up from $23 trillion in 2020.

While this figure is technically accurate, it includes intragovernmental debt, such as government trust accounts, or what the federal government “owes to itself.”

As of September 2023, intergovernmental debt stood at $6.8 trillion, but the tally has surely increased over the past eight months.

Even excluding intragovernmental debt, the U.S. federal deficit nearly equals GDP. In other words, the U.S. economy borrows as much as it produces.

To pay for this debt, Uncle Sam has to budget a record $1.1 trillion just for interest payments. That’s the highest level on record, even exceeding Washington’s bloated military budget.

While massive budget deficits aren’t unique to one administration, President Biden announced more than $2 trillion in new spending in his first 20 months in office.

That included the $1.2 trillion Infrastructure Investment and Jobs Act and the $747 billion Inflation Reduction Act.

The next great financial crisis?

Economists are concerned that federal debt could reduce economic growth, limit government spending on much-needed programs, and even trigger the next financial crisis.

One way or another, America’s debt addiction will spark the next great financial crisis, predicts Joao Gomes, the senior vice dean of research at the Wharton Business School of the University of Pennsylvania.

“I probably worry about the U.S. debt more than most of my professional colleagues,” Gomes said.

Gomes thinks things could come to a head this year as politicians bribe voters with promises of lavish spending.

The debt could “derail the next administration, frankly. If they come up with plans for large tax cuts or another big fiscal stimulus, the markets could rebel, interest rates could just spike right there, and we would have a crisis in 2025,” he said.

Economists cited by the Council on Foreign Relations warned that “large debts could become a drag on the economy or precipitate a fiscal crisis, arguing that there is a tipping point beyond which large accumulations of government debt begin to slow growth.”

Researchers at the Wharton Business School have attempted to determine when that “tipping point” could be.

According to them, the government has about 20 years before its debt becomes unsustainable at the current pace of spending and a default is likely.

“Unlike technical defaults where payments are merely delayed, this default would be much larger and would reverberate across the U.S. and world economies,” Wharton analysts wrote in their Budget Model.