“I’m not saying it’s mathematically impossible, but it’s very hard to imagine a solution that doesn’t have a tax hike and spending cuts as part of that”
Over the last 20 years, the US national debt has grown nearly 700 percent, from $2.8 trillion in 1989 to $22 trillion today. Over the next ten years, the annual federal deficit — the government’s budget shortfall every year — is expected to average $1.2 trillion, further piling on debt that now represents 78 percent of gross domestic product.
The question is: Does either party care?
Last week, the White House and congressional leaders agreed on a two-year federal budget that will raise spending by $320 billion over existing budget caps and allow the government to continue borrowing. Republicans were once considered the party of fiscal responsibility, but GOP members in the House and Senate largely supported the bill, which President Trump is expected to sign.
“For the most part, that goal has been set aside for the Republicans,” said Marc Goldwein, the senior vice president and senior policy director for the Committee for a Responsible Federal Budget. “Cutting taxes has been more important than balancing the budget. The Republicans have really been more a tax cut party than a balanced budget party in recent years.”
Bob Bixby, executive director at the Concord Coalition, a nonpartisan organization advocating responsible fiscal policy, said it’s not just the Republicans. “It seems like fiscal responsibility became rather inconvenient,” he said. “Neither party is in favor of enforcing it right now.”
The Budget and Control Act of 2011 placed budget caps on Congress through 2021, but both parties have routinely voted to raise those limits to fund defense and social welfare programs.
“If over the past five years Congress had acted responsibly and just kept the law as it was and not add to the debt, it would be less than half the size it is today,” Goldwein said. “The large majority of the deficit increases has come from President Trump. But this practice of not paying for things really started back in 2015 under President Obama.”
Ironically, the debt continues to grow at a time when the economy has never been stronger. The US economy has grown for a record 121 consecutive months since the 2009 recession, unemployment is at record lows, the stock market at record highs, and interest rates remain low.
Still, both Bixby and Goldwein agree that fiscal stability will only come with a tax hike and cuts in spending, despite the economic expansion.
“As a practical matter, it’s pretty hard to solve this problem without both increasing the amount of taxes we’re bringing in and getting control of the spending that’s going out,” said Goldwein. “I’m not saying it’s mathematically impossible, but it’s very hard to imagine a solution that doesn’t have a tax hike and spending cuts as part of that.”
Bixby said that borrowing is not a long-term solution for tax revenue shortfalls, because the government must pay interest on the loans, deepening the debt. “If we want to keep taxes as low as they are now, Congress and the president will have to really cut spending more than they want to. And at some point, we’re going to have to bite the bullet and raise taxes.”
A Threat to National Security?
Admiral Mike Mullen, a former chairman of the joint chiefs of staff under presidents George W. Bush and Barack Obama, once said that America’s debt constitutes a threat to national security.
That’s because defense spending — the largest discretionary item in the budget — might have to be drastically reduced if the debt continues to grow. “That’s doesn’t seem to be happening right now, but there’s some concern about that,” Bixby said. “I think the other concern is more what it does to the US position in the world if it relies upon borrowing huge sums of money from other countries, what that does to the nation’s standing.”
China, Japan, and the United Kingdom are the biggest purchasers of US bonds. Even though the White House is engaged in a trade war with China, that country still owns more US debt than any other nation. That’s in part because US bonds are still considered a safe investment, Bixby said.
Who Will Pay?
One factor exacerbating matters is the falling US birth rate, which hit a historic low in 2018. As baby boomers reach retirement age, there are fewer American workers to support them. “It means that even in a sustainable debt situation, future workers are going to have to pay more relative to past workers,” Goldwein said. “But especially when you have high debt, it means that future workers will not only have to pay for more seniors, but also for bigger and bigger interest payments. And ultimately, it’s just fundamentally unfair.”
Bixby agreed that future generations will shoulder a larger share of the national debt. “The younger people in this country are already looking at a much greater debt burden than any other generation in our country’s history.”
For How Long?
At what point does the debt become unmanageable?
Goldwein said we’ve already reached that point. “It’s growing at a rate that cannot be sustained,” he said. “At some point, the trajectory will have to change.”
Bixby describes it as a slow erosion over time. “If we’re not investing in a future, if we’re taking on a huge amount of debt rather than investment, what you will get is a slower-growing economy, a lower standard of living, perhaps a diminished standing in the world. And all of that just happens with time and you don’t necessarily notice it as it’s happening.”
It’s like living an unhealthy lifestyle, he said. If you don’t eat well and don’t exercise, it all might one day result in a heart attack. “But you don’t know which donut or cigarette is going to be the one that drives you over the edge.”
(Originally featured in Mishpacha, Issue 773)