Analysis: Bond market turmoil may force wealthy Americans to accept higher taxes
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This opinion article from The New Republic argues that the 2026 bond market sell-off, driven by rising Treasury yields, may force wealthy Americans to choose between low taxes and a stable bond market. It attributes the 10-year yield's climb to 5% largely to President Trump's tax cuts, which the Institute on Taxation and Economic Policy projects will reduce revenues from the top 1% by $1 trillion over a decade. The national debt exceeds 100% of GDP, approaching post-WWII highs. Treasury Secretary Scott Bessent's growth-based solution is dismissed as implausible, citing a July 2026 NBER paper by Dynan, Elmendorf, and Sheiner that finds AI-driven productivity growth would only slightly reduce the debt burden. The article also criticizes Elon Musk's DOGE cost-cutting efforts, citing a GAO report debunking claimed savings and Yale Budget Lab estimates that IRS cuts will cost $350 billion over a decade. The Committee for a Responsible Federal Budget's 2023 analysis is cited to show that balancing the budget through spending cuts alone, while exempting defense, veterans, Medicare, and Social Security, would require cutting all other spending by 78%, which is deemed economically unfeasible.
Source report
I've been wondering lately whether the Great Bond Sell-Off of 2026 might force rich people to make a Sophie's Choice between low taxes and a stable bond market.
The Driving Force Behind Rising Yields
The 10-year Treasury bill's destabilizing climb to a 5 percent yield is driven in large part by President Donald Trump's tax cuts. According to the nonprofit Institute on Taxation and Economic Policy, these cuts are projected to reduce revenues collected from the richest one percent by a trillion dollars over the next decade.
As a percentage of gross domestic product, the national debt exceeds 100 percent and is fast approaching the post–World War II high of 106 percent. In 1946, the national debt was bigger than GDP because the United States had spent the previous five years fighting a world war against Germany and Japan. In 2026, the national debt is bigger than GDP because rich Americans don't feel like paying taxes. (Gross debt, which adds in funds the federal government owes itself, already exceeds the 1946 level.)
Treasury Secretary's Failed Strategy
Treasury Secretary Scott Bessent, whose recent bond-buyback scheme to lower Treasury yields is failing, now says, "The only way for us to get out of this is to grow our way out of this."
Translation: "I don't have a clue how to get out of this."
Why Growth Alone Won't Work
Nobody believes we can grow our way out. According to a July 2026 paper by Harvard's Karen Dynan and Douglas Elmendorf and Louise Sheiner of the Brookings Institution, faster productivity growth attributable to artificial intelligence would only:
- "Slightly reduce the burden of existing debt"
- "Raise revenue a bit relative to GDP"
One reason is that the labor of the workers AI will lay off is taxed at a higher rate than the capital gains AI will generate. Render human labor extinct, and you have no alternative but to raise taxes on capital, assuming you want to have any government at all.
Why Spending Cuts Won't Work Either
Nobody believes we can cut our way out, either. Elon Musk tried and failed spectacularly.
His Department of Government Efficiency's website claims it saved taxpayers $215 billion. Even if that were true, it would be less than half what Trump's 2025 tax cut cost the Treasury this year alone.
And as it happens, it isn't true:
- The Government Accountability Office last month called bullshit on DOGE's claimed $110 billion in savings from contracts, grants, and leases.
- Even if you overlook that, the Yale Budget Lab estimates that DOGE's personnel cuts to the IRS will cost taxpayers $350 billion over the next decade.
- The nonprofit Partnership for Public Service estimates that the cost of firing, rehiring, and putting federal workers on paid leave, combined with productivity losses, cost taxpayers another $135 billion.
Even using DOGE's own highly questionable savings calculation, then, DOGE turns out to have increased the budget deficit by $270 billion.
The Impossibility of Balancing the Budget Through Cuts Alone
The Committee for a Responsible Federal Budget, a nonprofit that cares more than anyone else about eliminating the budget deficit, calculated in 2023 that if you tried to balance the budget through spending cuts alone:
- You'd have to cut all federal spending by 27 percent
- If you wanted to exempt spending on defense and veterans, you'd have to cut all spending by 33 percent
- If you wanted also to exempt Medicare and Social Security, as Trump has promised to do, you'd have to cut all spending by 78 percent
These are lowball estimates, because since 2023 the budget deficit has increased by about $0.3 trillion. None of the Committee for a Responsible Federal Budget's scenarios is remotely plausible, if only because federal spending cuts that even approached this magnitude would wreck the economy.
The Rich Person's Dilemma
If you're a rich person, you probably know all this, and until now you probably haven't cared because the national debt hasn't affected your net worth. Since 1981, when the government debt...
Source
The New RepublicWestern