The Lesser Evil: Why Borrowing Beats Tax Hikes in a Low-Interest Economy
As the United States stares down a national debt of over $36 trillion, a predictable chorus has returned: it's time to raise taxes and balance the budget. On the surface, the logic seems sound. Interest payments are climbing, deficits are widening, and fiscal restraint feels responsible. But this conventional wisdom overlooks a fundamental truth in public (and private) finance: not all debt is bad, and raising taxes isn't free. In 2024, the average interest rate on U.S. federal debt was around 3.28%. That's the cost the government pays to borrow money. Meanwhile, the economic cost of raising taxes—what economists call the "opportunity cost"—is often much higher. Over the past two decades, private investors in the U.S. have earned significantly higher returns than 3.28%. Private equity investments have yielded average annual returns of around 11%, public equities such as the S&P 500 have returned close to 10%, and private credit has averaged approximately 8.1%...