Is Trump right that rising stock market can reduce national debt?
President Trump this week made the surprising suggestion that the rise in the stock market could "in a sense" be reducing the national debt.
"The country — we took it over and owed over $20 trillion," he said in an interview on Fox News' "Hannity" on Wednesday night. "As you know the last eight years, they borrowed more than it did in the whole history of our country. So they borrowed more than $10 trillion, right? And yet, we picked up $5.2 trillion just in the stock market. Possibly picked up the whole thing in terms of the first nine months, in terms of value. So you could say, in one sense, we're really increasing values. And maybe in a sense we're reducing debt."
Is he right that the rise in the stock market, in a sense, reduces debt? No.
The federal government's debt is not related to the value of private corporations. Any increase in the value of companies helps shareholders. The rise in the stock market alone could have no effect on the nation's debt unless those stocks are sold, at which point those shareholders would pay capital gains taxes to the federal government on their earnings.
And even then, the Committee for a Responsible Federal Budget (CRFB) makes the point that in 2016, capital gains taxes made up just 4 percent of federal revenue. "Even a record jump in capital gains next year would only reduce further borrowing by about $50 billion," notes CRFB. And that, the group says, is less than 1/10 of what the U.S. is currently projected to borrow next year.
The president is right about a couple of the underlying facts, though. The national debt is about $20.3 trillion. Gross debt, CRFB notes, rose $9.3 trillion under Obama, from $10.6 trillion to $19.9 trillion, although Obama alone isn't responsible for the increased debt.