Debt-and-Deficits Essay Contest: The Winners
A novel tax, a clever cut, and an optimal growth solution.
As the final installment of our essay contest, finally, here are the winning submissions. We recommend checking them all out and subscribing to the authors’ respective publications — they deserve more exposure!
1st Place — Quy Ma
Incentives, incentives, incentives.
That is what Ma’s grand-prize-winning essay flagged as the real root cause of the fiscal trap the US finds itself in. He argued that forty years of accumulated tax architecture has taught capital to pool idly in appreciating assets rather than circulate throughout the productive economy, where it would generate higher taxable wages and profits along the way.
The solution put forth is what Ma dubbed “productive deployment weighting” — taxing idle assets harder than working ones to produce real output gains by spurring capital reallocation. It’s a fairly novel idea. A deep survey of the economic literature yields just one formal cousin: a 2023 paper in the Quarterly Journal of Economics, "Use It or Lose It" by Guvenen et al., which largely corroborates Ma's conjecture.
Overall this was just an exceptional essay, and it was the only one in the field that truly answered the question of how America, the wealthiest country in the world with the deepest capital markets, could possibly have a debt problem:
"America is not running out of money. It is running out of circulation. Debt is a symptom."
2nd Place — S.B. Orson
We’ve argued throughout the sprint on debt and deficits that big spending cuts are (more or less) politically impossible in the US — at least with the current composite of electoral interests. This essay directly challenged that premise, positing that spending cuts are only impossible if those interests aren’t economically (or directly financially) placated.
While there were a few “buy our way out” submissions in the essay contest, Orson’s proposal was hands down the most cleverly constructed and completely worked-out. The logic runs like this:
Every American gets a one-time payout funded by new government bond issuance → Social Security and Medicare end → The payroll tax that funded them is scrapped in favor of a smaller tax dedicated to paying off the bonds → Most workers see an immediate raise
The kicker here is that the bonds matter enormously. A promised benefit and a government bond are legally different animals — the former is a promise that can be reneged on while the latter cannot be cut, as it is a debt contract protected by the Constitution. And unlike the current system, which owes money forever, these bonds are paid off in 25 years and it's over.
Now, the biggest open question is how trillions in new bond supply gets plopped into the markets without rates blowing out. But as far as political-economic engineering goes, this essay was spectacular. Imagine the stump speech:
"The future is unknowable, I just want to put tens of thousands of dollars into your bank account before it all falls apart."
3rd Place — Nathan Smith
Another banger from Nathan, who took the top prize in our housing sprint, and who recently became a regular writer for Cato’s HumanProgress.org!
The longstanding caveat to the economic argument for pulling the immigration lever for growth is that immigration-driven systems can reach a Ponzi-esque failure mode when new entrants generate more benefit claims than government revenue. Milton Friedman warned of this half a century ago — "It's just obvious you can't have free immigration and a welfare state." — and America today is unequivocally a welfare state. Nathan’s proposal addresses this head-on.
Specifically, the argument made here was that immigration should be priced at the door. $5,000, roughly the “coyote” price, except it buys legal status — as well as licensing surcharges, extra property tax on non-citizen purchases, a substantial citizenship fee, and income surcharges of 30-50%, collectible because the penalty for evasion is deportation.
And for the econ-brained folks, Nathan showed his work with a model and data to boot. He even tilted it against himself — in his model immigrants never fully close the human-capital gap. Wages dip, then recover almost entirely as investment floods in behind the new labor; in practice the capital moves faster than the people, so natives likely never feel the dip.
Of course anti-immigration populists aren’t often keen on hearing the economic arguments, but this essay made the imperative clear:
"We do not have to accept a future of managed decline, crushing taxes, or a closed society. We can escape the fiscal trap. It is time to welcome the talent of the world, price the privilege of participation, and build a solvent, dynamic America."
Stay tuned for our announcement of the upcoming sprint topic and essay contest — some changes are brewing!