Jim Hartman: Unsustainable federal deficits and debt
The Congressional Budget Office reports the U.S. government will soon have a debt burden equal to America’s entire gross domestic product.
That will put the U.S. in the company of a handful of nations with debt loads that exceed their economies, including Japan, Italy and Greece.
CBO announced the lockdown coronavirus recession and explosion of spending this year will increase the budget deficit for fiscal year 2020 ending Sept. 30, to $3.3 trillion. That’s the largest annual deficit since 1945, during World War ll.
The surge in borrowing has increased dramatically in recent years. In 2007, before the financial panic and crash, public debt was 35% of GDP.
While spending increased in the George W. Bush years, the debt stayed under control.
Barack Obama and a Democratic Congress addressed the 2008-09 recession with a spending blowout and the slowest economic recovery since the 1930s. Public debt exceeded 76% of GDP by the time President Obama left office.
In 2016, Donald Trump promised to eliminate the national debt within eight years, pleasing Tea Party Republicans who railed about the trillion-dollar deficits run up by the Obama administration.
Instead of reducing deficits, government deficits have increased for five years in a row. When Trump took office, the debt was at $19.9 trillion. It has now grown to $26.5 trillion.
The current fiscal year record deficit of $3.3 trillion is a result of severe contraction in the economy caused by COVID-19 and massive federal spending to counter it. As in wartime, the government needed to spend freely.
Notable however the federal deficit was $984 billion in fiscal year 2019, before the virus hit and with a booming full employment U.S. economy . If government spending cannot be brought under control during good times, what chance is there in a crisis?
The major drivers of federal spending are Social Security, Medicare, Medicaid, and national security. President Trump has ruled out-of-hand any Social Security and Medicare reforms. These are very popular entitlements, but their future cost trajectory must be addressed to make them fiscally sustainable.
While Trump is the self-proclaimed “King of Debt,” his Democratic challenger, Joe Biden, is proposing a staggering $11 trillion in new spending over the next decade, according to a Manhattan Institute study.
Biden has a $1.4 trillion health care plan to expand the Affordable Care Act, bringing a “public option” to health exchanges. He advocates reducing Medicare eligibility to age 60 — costing $300 billion.
He also proposes new spending on climate and infrastructure ($2 trillion), Social Security and Supplemental Security Income ($1 trillion), college, K-12 education, and preschool aid ($1.5 trillion), family leave assistance ($550 billion), “Buy America” investments ($700 billion), housing aid ($640 billion), and combating opioid addiction ($125 billion).
Finally, Biden has endorsed the $3 trillion in stimulus spending passed by House Democrats.
Biden’s portrayal as a “moderate” during the Democratic primary is a testament to how far left the Democratic Party has moved.
While his proposed $11 trillion in new spending is significantly less than that proposed by Elizabeth Warren and Biden running mate Kamala Harris (a fanciful $40 trillion each), or Bernie Sanders (an unfathomable $97 trillion), Biden’s plans still represent a near 20 percent spending hike over the already-accelerating spending baseline.
It also dwarfs the previous three Democratic presidential nominees — John Kerry, Barack Obama and Hillary Clinton —who each proposed federal spending expansions of between $1 and $2 trillion over the subsequent decade.
Cynics say nobody cares about the deficit. That’s not true, but even if true, nobody cared about subprime mortgages — until they had to. Washington’s spendthrift ways are setting the U.S. government up for an eventual fiscal crisis.
It’s past time for Washington to sober up and buckle down.
But politically, in the race between Trump and Biden, the deficit unfortunately hardly seems to matter.
Jim Hartman is an attorney residing in Genoa and a Committee for a Responsible Federal Budget supporter. E-mail firstname.lastname@example.org.