Treasury reports that last month total federal debt surpassed the $40 trillion mark, equivalent to more than 125 percent of gross domestic product (GDP), and it has continued to rise. Debt held by the public, excluding intragovernmental holdings, is now greater than 100 percent of GDP. Just twenty years ago, it stood at about 35 percent of GDP. 

In other words, the US has a big, rapidly growing fiscal problem. Rising federal debt is problematic for several reasons: It crowds out private investment, hurts investor confidence in the US economy, reduces our ability to respond to future crises, and creates a vicious cycle where the government is borrowing to meet its interest payments. Multi-faceted solutions, including revenue options, are needed to break the cycle.

One place to start: Individual tax rates could be higher

The One Big Beautiful Bill Act (OBBBA) will increase federal debt by $4 to $5 trillion dollars, TPC researchers conclude. Most of the law’s revenue loss stems from permanently extending or expanding individual tax provisions of the Tax Cuts and Jobs Act (TCJA), including lower individual rates. 

TPC estimates that reversing OBBBA’s changes to individual income tax rates and brackets would raise $3.8 trillion from 2027 through 2036 (Table T26-0150). By comparison, raising only the top individual rate to its pre-TCJA level of 39.6 percent would raise only about one-tenth of that amount.

The benefits of those rate reductions are concentrated among higher-income households. TPC finds that about three-quarters go to households with annual incomes over $200,000. For households with incomes between $40,000 and $50,000, the rate reductions save less than $100 a year on average. 

The potential revenue from reversing the rate cuts also is large compared with some proposals aimed exclusively at very high-income or high-wealth households. For example, the Biden administration proposed a 25 percent minimum tax, generally including unrealized capital gains on taxpayers, with wealth above $100 million. Treasury estimated that the proposal would raise roughly $500 billion over 10 years. 

More broadly, a wealth tax could raise over $1 trillion, depending on its rate, exemption threshold, and tax base. But wealth taxes present significant challenges, including the valuation of illiquid assets and opportunities for tax avoidance or evasion. They also can be hard to administer, and legal scholars disagree over whether a federal wealth tax would be constitutional.

And the estate tax exemption could be lower

OBBBA permanently increased the estate and gift tax exemption to $15 million in 2026, indexed for inflation; under prior law it would have fallen back to roughly half that amount. TPC finds that the gap between pre-OBBBA law and current law is about $230 billion over 10 years. 

Other changes to the taxation of capital could raise revenue on a similar scale. For example, adopting carryover basis for assets transferred at death could raise about $200 billion over ten years, according to the staff of the Joint Committee on Taxation.

Or the tax base could be broader

One lesson from other countries in the Organization for Economic Cooperation and Development (OECD): Raising substantial revenue generally requires a broad tax base, including significant reliance on income and consumption taxes. Other OECD countries generally draw revenue from a mix of individual and corporate income taxes, social insurance contributions, property taxes, and broad consumption taxes. 

Value-added taxes (VAT) are one important example. A VAT is a broad tax on consumption, collected in stages throughout the production chain. Because it taxes consumption rather than income, it does not directly tax the return to saving and investment in the same way an income tax does. Every OECD country except the US has a national VAT or similar goods and services tax. Across OECD countries, VAT revenues averaged 7 percent of GDP and accounted for 20.8 percent of total tax revenue in 2022. 

In the US, consumption taxes, largely state and local sale and excise taxes, account for just under 17 percent of US government revenue, compared with an OECD average of roughly 31 percent. TPC’s William Gale reports that a 10 percent VAT could raise nearly $10 trillion over ten years, before funding measures to offset its distributional effects. He also showed how rebates or transfers could minimize burdens on low-income households.

Because tax hikes on the wealthiest won’t be enough

Taxes targeted exclusively at the highest-income or wealthiest households can raise substantial revenue, but the amounts may be small relative to the scale of projected federal deficits and debt. Instead, policymakers could consider broad-based taxes which can raise substantially more revenue, and account for their distributional effects in their design. 

Doing so would yield a better economic and fiscal outlook for the country in the long run.