In the weeks leading up to the election, In Theory will be asking policy experts to weigh in on the critical questions our presidential candidates should be addressing — but often aren’t. This week we’re discussing the national debt.
In the last fiscal year, the federal government spent 6 percent of its budget to service the national debt. That’s $223 billion going toward paying the interest on borrowed money — and that portion of our budget is only projected to increase as government spending expands.
There’s considerable amount of debate about whether this is actually a bad thing. After all, most Americans and businesses have some level of debt on hand. Debt allows us to buy things we can’t afford now, and that’s often a good thing — much of our national debt is the result of federal spending on programs such as Social Security, Medicare, Medicaid and defense. But the government is already wrestling with massive deficits on a year-to-year basis, so the fact that a growing chunk of its revenue immediately goes to covering its debt obligations calls into question our financially sustainability.
As secretary of state, Hillary Clinton said the debt poses a national security threat. But she’s been noticeably silent on the issue throughout her campaign. In fact, economists have projected that her campaign proposals would increase the debt over the next decade (by how much is disputed — some say as low as $275 billion, others say as high as $1.5 trillion). Meanwhile, Donald Trump has regularly campaigned on eliminating the national debt by cutting government spending — although most economists have balked at his proposals as unrealistic austerity (especially along with his proposals to massively reduce taxes).
What happens if our historically low interest rates rise in the next few years? What’s the plan if we have to spend, for example, twice as much (that’s 12 percent) of our budget on interest rates? How do we avoid falling into the so-called “debt spiral” seen in countries like Japan or Greece?
Maya MacGuineas is president of the nonpartisan Committee for a Responsible Federal Budget.
We need to control our national debt and leave a strong economy for the next generation. Yet there are no policy ideas from the campaigns to do so. We are on course to add $9 trillion to our debt over the next decade, yet neither candidate has a plan to reduce that by even one penny.
If the next president’s priorities are to help grow the economy, to preserve public investments and important safety net programs or to ensure that we are prepared for the next economic downturn, this is a huge problem.
He or she will face significant fiscal challenges. Annual budget deficits — which had come down in recent years as we climbed out of the recession — are back on the rise. Our national debt stands at 75 percent of gross domestic product — the highest it has been since World War II — and it’s projected to keep growing indefinitely. The baby boomers are retiring, we have failed to update our entitlement programs and interest payments are the fastest growing part of the budget. As debt keeps growing, it will slow wage growth, increase interest costs and crowd out important government investments.
In June, the Committee for a Responsible Federal Budget estimated that Hillary Clinton would keep the debt on its currently unsustainable track — allowing it to rise from 75 percent of GDP today to 87 percent within a decade — while Donald Trump would explode the debt to 127 percent of GDP by 2026.
So, how can both candidates reverse course?
First, agree to stop digging. There should be no spending or tax reductions that are not offset. The next president should make a promise to the American people to stick to pay-as-you-go budgeting and not support any legislation that would make the debt situation worse. (Members of Congress, by the way, should make that promise too.)
At the same time, neither candidate should take policy nor tax reforms off the table. Trump has made counterproductive promises not to touch Social Security while Clinton has made a no-new-tax pledge for families making less than $250,000. But we need to make Social Security solvent to avoid the potentially devastating, across-the-board 21 percent cut that the program is projected to face in 2034. As a starting point, the next president should look to a recent bipartisan Social Security proposal — Save Our Social Security Act — and the recommendations of the Commission on Retirement Security and Personal Savings at the Bipartisan Policy Center. Likewise, we need tax reform that makes us more competitive, grows the economy and raises revenue — but that is not the same as tax cuts that would worsen our fiscal situation.
Political candidates find it difficult not to pander, but presidents have to lead. The more honest a discussion they have with voters now about the types of challenges that lay ahead, the more able they will be to steer the country towards dealing with our fiscal problems as part of a sustainable and comprehensive economic plan.