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America's Debt Nightmare
Neither party is taking the federal debt seriously, but the GOP has given up on budgetary arithmetic altogether
Hardly any political issue today is simultaneously less sexy and more depressing than America’s national debt.
The country is on track to exhaust the Medicare hospital trust fund by 2031 and Social Security by 2034, owe $46 trillion in debt by 2033 (that’s 118 percent of GDP), and spend more on federal debt interest than on Medicare by 2044 and Social Security by 2050.
A 2022 analysis by the Congressional Budget Office found that continuing on the current debt trajectory
would have serious consequences for the economy and federal budget, including the crowding out of private investment, higher interest costs, and increased risks of a fiscal crisis and of other disruptions.
In short: there is a debt reckoning coming.
But is it possible to avoid a full-scale debt crisis?
The GOP once prided itself on being the party of fiscal responsibility. Whether that pride was ever warranted is debatable, but whatever claim to fiscal stewardship the GOP might have had in the 20th century is long gone.
Part of the expansion under Trump was a result of Covid spending, which many believe was necessary. But there was also his Tax Cuts and Jobs Act, which adds $1.8 trillion to the debt by 2029 in order to give a tax cut to wealthy people and corporations.
History has shown Republicans to be deficit hawks when there’s a Democratic president and spendthrifts when there’s a Republican one. Because Joe Biden occupies the White House, we’re in a period where the GOP has miraculously remembered its commitment to deficit reduction and balancing the budget. But by following Trump’s lead and promising not to touch Social Security, Medicare, and defense spending or to raise taxes, the GOP has given itself a math problem that no budget—no matter how much “waste, fraud, and abuse” it subtracts—will be able to solve.
In order to follow through on their commitment to balance the budget without cutting Social Security, Medicare, and defense spending or raising taxes, the GOP would need to cut around 85 percent of the remaining federal budget. According to the Committee for a Responsible Budget, that would mean “ending all nondefense appropriations and eliminating the entire Medicaid program just to get to balance.”
That’s never going to happen—not merely because of the financial devastation it would bring to millions of American households, but also because of the electoral devastation it would bring to the Republican Party.
There are really only two explanations for Republicans’ budgetary madness: they don’t understand basic mathematics or they are being dishonest.
For those of us who worry about the nation’s fiscal condition, both possibilities are extremely concerning. The first would mean that the GOP has become fully detached from reality, and the second would mean that it sees the growing debt as little more than a political weapon to be used against Democrats.
Democrats are not immune from blame. They’ve also shown themselves to be bad fiscal stewards.
Under Barack Obama, the debt grew by $8.3 trillion (70 percent increase), and Biden is overseeing yearly deficits of well over $1 trillion. Biden has also enacted policies, including the American Rescue Plan ($1.9 trillion) and student debt cancellation ($400 billion), that will add several trillion in additional dollars to the debt.
Last month, when Biden released his 2024 budget proposal, he also unintentionally reaffirmed that Democrats have a spending problem. While the budget has no chance of becoming law, it does indicate the president’s priorities and the general direction he’d like to take the country.
Unfortunately, the proposal is a spending spree of monumental proportions, recommending that we fork out an additional $3 trillion over the next decade for a wishlist of progressive priorities: making preschool and community college free, guaranteeing paid medical and family leave, expanding the child tax credit, making the more generous Obamacare premium subsidies permanent, housing assistance, free school lunch, and many others.
The budget also relies on some sketchy accounting and impractical ideas. For one thing, Biden mysteriously left out his $400 billion student debt cancellation from the “expenses” side of the ledger. For another, he proposes taxing the wealth (including unrealized gains on assets) of billionaires, an idea that is effectively impossible to implement and may even be unconstitutional. Similarly, Biden’s blueprint doesn’t address Social Security at all and relies on accounting gimmicks to make Medicare look more financially stable.
But while it’s constructive to acknowledge the Democratic party’s deficiencies, it’s also important to remember that politics often requires an attitude of pragmatic realism and the ability to differentiate between shades of grey. With that in mind, those who want the country to return to fiscal sanity should favor the Democratic party. Though the party frequently veers off course, it at least recognizes that the deficit is getting out of control and that budgetary math needs to add up.
While Biden’s proposed budget does increase spending by $3 trillion, for instance, it more than offsets those expenses with new revenue, mostly by raising taxes on wealthy people and corporations.
In total, Biden’s 10-year budget would actually decrease the debt by $3 trillion relative to the status quo. While that may not be enough for deficit hawks, it is a sign that Democrats recognize the debt problem and are willing to take tangible steps to mitigate it. Moreover, this is not the first time in the recent past that Democrats have made deficit reduction a priority: just last year, Democrats passed the Inflation Reduction Act, which reduced the 10-year deficit by nearly $250 billion.
In an ideal world, Democrats would get even more serious about deficit reduction. A good north star would be to stabilize the debt-to-GDP ratio. Eliminating the debt is unrealistic, and even deficit hawks say that this more modest goal of ratio stabilization would be sustainable. Right now, the debt is just under 100 percent of the nation’s annual GDP, and keeping it around that level would require cutting the deficit by around $7 trillion over the next decade. This may be ambitious, but it’s a good benchmark.
There is no one right way to go about reducing the deficit. The budget has many moving pieces, and anybody serious about deficit reduction has a lot of options to consider and should be prepared to compromise. That said, my ideal plan would avoid increasing taxes on individuals and cutting programs that help the neediest Americans, like SNAP (food stamps) or Medicaid.
Instead, I’d prefer a plan that (1) cuts costs by restructuring Social Security and Medicare and (2) raises revenue by increasing taxes on corporations and eliminating certain tax deductions.
There’s no way around the fact that the cost-cutting will be painful. To get close to the $7 trillion benchmark, Democrats would need to touch the political third rails of Social Security and Medicare. It’d be hard, but Democrats could conceivably get enough Republicans on board to reform Social Security with some combination of means testing, standardizing benefits, and raising the retirement age. They could make similar changes to Medicare by raising the age of eligibility and increasing premiums. These are heavy lifts, and they would require the country to start thinking about these programs less as retirement plans and more as parts of the social safety net.
The revenue-raising would be slightly less challenging. Democrats could, for instance, roll back the $1.7 trillion in corporate tax cuts that Republicans passed in 2017. There are also a few proposals that, from my perspective, double as revenue-raisers and good policy more generally. Specifically, Democrats could push to end or limit tax deductions for employer-paid health insurance or impose a tax on carbon emissions.
Unfortunately, given how politically unpopular and electorally painful this agenda would be, it’s effectively a non-starter among Democrats. That could change in the coming years when Social Security and Medicare trust funds start to dry up and as the rising debt causes other unignorable economic disruptions. But for now, neither party seems ready to do what’s required to put the country on a sustainable financial footing.
As is so often the case in American politics, voters will ultimately be left deciding between two less-than-perfect options: the Republican Party, which has given up on basic budgetary arithmetic altogether and sees the debt primarily as a political weapon, and the Democratic Party, which spends too much and exploits budgetary gimmicks, but still sees reducing the deficit as a genuinely important objective.
Unless the GOP can prove it is willing to meaningfully address our budget crisis, something it insists on when the party’s out of power but drops the moment it’s in charge, those of us concerned with freefalling federal debt will continue to look to Democrats to attack this problem.
Seth Moskowitz is a journalist writing about American politics and elections. He is also an editor at Persuasion. Subscribe to his blog, Brain Candy for free.