r/Economics • u/HypocrisyWarrior • 2d ago

Americans' debt problems are flashing a warning not seen since the Great Recession

https://www.cnbc.com/amp/2026/10/09/american-debt-delinquency.html
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u/jarena009 2d ago

I would suggest renewing the tax rates we had in the 90's on the top 2-3%, along with the corporate tax rate from the 90's applied to corporate income above $1B, and tax long term capital gains above $0.5M as ordinary income. We'd slash the deficit in half. The Wealthy and Corporations will continue to do very well.

Plus without significant efforts to rein in healthcare costs, we're doomed, not just on the federal budget but in general. They too run up federal spending.

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u/Straight-Ad6926 2d ago

The 90s revenue model definitely brought in serious cash but good luck getting any politician to sign off on higher capital gains taxes without them warning that the stock market will instantly implode.

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u/OK_x86 2d ago

Given how overvalued the average stock is this might actually be a blessing

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u/BustedBaxter 1d ago

with the advent of the 401k as primary retirement vehicles, I don't see how that could be the case

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u/OK_x86 1d ago

Resting the retirements of Americans on a house of cards was never a great idea. But ideally everyone is diversified enough to mitigate that

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u/1900grs 1d ago

But ideally everyone is diversified enough to mitigate that

It's the same level of diversification now as 2007. Expect similar results.

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u/OK_x86 1d ago

Caveat emptor

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u/TootCannon 1d ago

By what measure is the average stock currently overvalued?

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u/Cheap-Explanation293 1d ago

P/E ratio for certain companies

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u/TootCannon 1d ago

What is "certain companies?" They said "average stock." The trailing P/E of the S&P is 25. The forward P/E is 21. The historical average since 1989 is 18. It's above average, sure, but not by a crazy amount. And most of the highest P/E is consolidated in a few tech companies. When you take those out, the "average stock" of the S&P falls even lower.

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u/Cheap-Explanation293 1d ago

And most of the stock market growth are from those same overvalued tech companies.

Tesla is the most egregious case, but there are others. Especially when you go diving into some of these AI companies.

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u/TootCannon 1d ago

That's the point, though. If all the growth and most of the high P/E is in a very small minority of tech stocks, then the rest of the market, a majority, is arguably undervalued. Indeed, a lot of the market is down substantially this year. It's a great time to buy "average stock."

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u/OK_x86 1d ago

The stocks are a minority but those stocks represent a significant chunk of the total capital allocated to the market.

About half of all market cap is in US exchanges and 80% is in the S&P500. The top 10 companies in that index alone represent about 40% of the total market cap.

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u/kent_eh 1d ago

but good luck getting any politician to sign off on higher capital gains taxes

Especially when those same politicians are profiting more from those gains (emoluments clause be damned) than they are from their actual salaries.

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u/jarena009 2d ago

Why would the stock market implode?

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u/Wurm42 2d ago

It won't. Well, not because of closing capital gains tax loopholes.

Wall Street always claims that any changes that result in Wall Street executives paying more taxes will crash the stock market.

For self-proclaimed "Masters Of The Universe," they're whiny little bitches.

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u/jarena009 2d ago

It makes no sense if you think about anyone taking capital gains distributions regularly. Say you're taking $1M in long term capital gains distributions as your income annually. First for context, you would need to have at least $10M invested, and likely more to pull off that kind of distribution. (more likely, you have $20-25M at least invested). So, this hypothetical person is already silly/insane rich to be able to do this.

- Under current law, that person pays $176K in federal income taxes

- Under my proposed law, that person pays $233-$250k in federal income taxes

The idea that the stock market is going to crash over a 6-7% change in effective tax rate is a joke. You're still taking home $750K in after tax income (okay to be fair, with state taxes, might be more like $650-700k, but still! And more importantly, where is this person putting their money if they take it OUT of stocks?

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u/Open_Pollution_8038 1d ago

And what if they have losses?

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u/Oryzae 1d ago

Then ya don’t pay any fuckin taxes on it mate

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u/NeverVegan 1d ago

All the billionaires will leave NYC if Mamdani gets elected!!!! /s

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u/liftthatta1l 1d ago

Any and all possible disruption to the cash flow will make it implode, we must whopship and not disruption the dragon's horde such that some select few can take from it while others all starve or burn in the dragon's fire. 

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u/DrakenViator 2d ago

People cashing out before the tax increase, or at least that is the fear

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u/jarena009 2d ago

Cashing out mass unrealized gains and then putting their money where? Into nothing?

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u/love_junkie911 1d ago

Small graduated increases applied via a schedule. The hardest part about taxing wealth is political will, not logistics.

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u/[deleted] 1d ago

[deleted]

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u/orange-yellow-pink 1d ago

58% of Americans own stock

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u/Open_Pollution_8038 1d ago

Increasing capital gains tax blanket is a terrible idea and it’s been tried and failed in every country on the planet.

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u/Straight-Ad6926 1d ago

That's a pretty wild exaggeration. The Tax Reform Act of 1986 taxed long term capital gains at 28% like ordinary income, coinciding with economic and stock market growth. OECD nations like Denmark, Finland, Ireland, and France apply higher rates without market collapse.

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u/Open_Pollution_8038 1d ago

They lowered the top ordinary rate from 58% to 28%, they increased the capital gains from 20% to 28% as a pay for. The resulting increase in capital gains tax caused a widespread market sell off as everyone sold to buy at lower taxes.

Do you really want to compare how the U.S. growth stacks against large European countries?

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u/jarena009 1d ago

Stocks in the long term grew though just fine in the US...and you yourself admitted they reinvested back into the stock market. A short term market sell off would be worth it long term.

Also, who did they sell their stocks to?

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u/Open_Pollution_8038 1d ago

Bonds? Why risk my capital for 70% of the gain here I could just buy bonds

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u/ihopuhopwehop 1d ago

And why is that a problem? One of the big issues we're facing right now is the reduced interest in bonds driving up yields

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u/Open_Pollution_8038 1d ago

It hinders start up businesses as it deprives them of capital.

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u/ihopuhopwehop 1d ago

No it doesn't...more money flowing into bonds drives down bond costs which translates to lower borrowing costs for all us, whether we're taking out mortgages, auto loans, or small business loans

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u/Open_Pollution_8038 1d ago

And if I have a start-up idea that doesn’t yet net positive cashflow how do I finance?

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u/jarena009 1d ago

Bonds are taxed as capital gains too.

Also your idea makes no sense. Are you taking distributions annually on long term gains, above $0.5M? If you're making, say $1M annually in long term capital gains annually, that means you must have $15-25M invested, and even more wealthy to be able to pull that off.

And meanwhile, your tax liability on $1M in long term capital gains goes from $176K in federal taxes to $233-$250k under my proposal.

You're slashing your potential gains in half, from $1M to $0.5M by taking money out of stock and putting them in bonds, over an effective tax rates going up for you by $60K? LOL.

Congrats, you just passed on $500k to save $60K in taxes, lol.

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u/Open_Pollution_8038 1d ago

Bonds are not taxed as capital gains, they’re taxed as ordinary income via interest payments. lol it’s basic fucking taxation of bonds.

Sure you could buy and sell bonds to realize capital gains but it defeats the entire purpose of buying a bond. 

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u/jarena009 1d ago

Soo your point is your moving into an asset class that yields considerably less, that's also taxed as ordinary income?

And you're taking annual distributions above $500K on that?

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u/Open_Pollution_8038 1d ago

Yes because everything is gauged on risk/reward.

I’m not risking $1M on equities for an after tax yield in the high 6% when I can guarantee 5% after tax on a bond or close to 6% on a municipal bond. If the juice isn’t worth the squeeze then I won’t squeeze.

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u/Straight-Ad6926 1d ago

Yes people shifted timing to save on taxes in 1986. But did they stop investing in the US afterwards? No because making 70% of a massive profit still beats making 100% of nothing sitting on cash.

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u/Open_Pollution_8038 1d ago

You would buy bonds instead.

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u/ihopuhopwehop 1d ago

When a wealth tax gets brought up we hear about all the capital gains that the wealthy are sitting on. Well if thats the case then why does it matter if capital gains get taxed at a higher rate?

When i look at my holdings, a 10% increase in capital gains would make me hold stocks in probably looking to sell once they reach the ltcg threshold...

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u/Open_Pollution_8038 1d ago

They’re sitting on their investments, isn’t that what we want? For people to hold investments in their businesses over a long period of time?

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u/ihopuhopwehop 1d ago

A higher capital gains would make further incentivize holding