It’s all catching up now. High levels of spending, recession prevention techniques, and tax cuts continuously. All of this has led to an additional $25 trillion in debt that’s never been this high. It’s so high it may shut down the government.
In just over 20 years, America has found a way to increase its total debt 6 times more. There are no signs of it stopping, with the latest projections looking to add over $1 trillion a year.
Recently, this borrowing cap has been hit, forcing the government to decide whether to approve more funding or curtail spending. Republicans are pushing for the latter unless some hefty cuts are made. But, to be fair, the debt has occurred due to both parties, whether it’s through the tax cuts, paying for wars, or recessions that needed to have the people recover from.
Maya MacGuineas, currently the President of the Committee for a Responsible Federal Budget, stated, “increases and tax cuts have been a bipartisan effort. It’s not only Republicans responsible for tax cuts or Democrats responsible for spending.”
Yet, not many economists currently feel this is any type of crisis. However, they feel that not raising the current limits before the cuts happen could be extremely damaging to the economy.
Even with the blaming on both sides, there’s been relatively little done to actually curtail spending and reduce the debt being made. It’s almost 25 years since the last time the U.S. government was net positive relative to debts and taxes.
Many experts feel that with politics getting in the way and the baby boomer generation getting a lot of retirement benefits, it could take at least another ten years before the debt is manageable.
The current situation will be handled by the government borrowing even more funds, up to $6 trillion, just to cover 20% of the debt at current rates.
How did we get to this when the early 1990s was a time of reduced military spending and a new tech sector booming that left the U.S. government flush with cash? By the end of the millennium, The U.S. government was way ahead on the positive side of the equation, which didn’t even last a year into the 21st century.
The economy burst with the dot com bubble. This was combined with the 9/11 attacks that turned back on the military engine and wars that would last for quite some time in the Middle east. War Bonds to fund those wars weren’t issued, nor were taxes raised, meaning getting into more debt. This led to trillions in National Debt increase
These conflicts continue, with the Department of Defense stating there will still be around $1.6 trillion in costs to manage these conflicts directly. In addition, indirect costs, such as veteran care, money borrowed to pay for these wars and so on, were almost another $6 trillion in total.
This is combined with tax cuts happening during the early 2000s that several cut government revenues. These were meant to be short-term, but by 2012, the next administration made about 80% of these tax cuts permanent.
These tax cuts, according to the estimates and studies done between 2001 through 2018, cut cost revenues of nearly $5.6 trillion.
Yet the tax cuts continued, and by 2018, the new President and a Republican majority pushed through the latest cuts into the federal revenues. The reasoning would be that the economy itself would get a boost from this and grow, thus generating fresh tax revenues anyway. Yet the Congressional Budget Office estimated in 2018 these cuts would pile on another $1.2 trillion in debt all the way past 2022.
Douglas Holtz-Eakin, who used to be a director at the Congressional Budget Office, stated that “spending needs to be controlled, especially with fewer revenues from tax cuts coming in. The issue with Republicans here is that they always push for tax cuts but never push seriously about less spending.”
Some of these spending programs may appear simple but end up costing billions of dollars, as is the case with a new drug benefit for Medicare, according to Josh Gordon, a health policy director for the Responsible Federal Budget Committee.
Mr. Gordon continued to say that calculating how bad the Affordable Care Act was added to the debt. It ended up adding more debt, but it also increased taxes and revenues from it. Also, with a better healthcare system, Medicare spending was alleviated in some cases.
He did want to be clear that the “Affordable care act did help reduce Medicare costs and spending, but they should not get all the praise.”
On the other end, Mr. Holtz Eakin believes that the Affordable Care Act actually had a much bigger impact on the debt increases. However, he also continued to state that the spending on Medicare and other social programs such as Social Security was never properly managed in the past twenty years, and now is feeling the crunch with the ever-increasing ageing population.
Yet the biggest culprit here for the large debt increases has been the two economic problems that occurred in 2008 and in 2020. First, the financial crisis of 2008 had an $800 billion additional cost added, and with the next several years more spending continued with a slow recovery.
The pandemic in 2020 led to a $3 trillion package for aid. By the next year, when Biden came into office, an additional $1.9 trillion plan was signed and executed.
While not every economist agrees on how these responses were designed or their huge size, they did agree that it was the right thing to do by the government to help save the flailing economy at the time.
Lindsay Owens, the economic sociologist, says it best that “The purpose of the debt is critical. Debt by the government to revive the economy or put into proper investments leads to economic benefits that help to manage unemployment and keep small businesses alive.”
The blame shouldn’t go on any one individual, whether it was one party or the other or the act of a President at the time. These were done to help the moment difficult decisions needed to be made. In fact, when you actually review how much the debt grew, it was truly something both parties helped happen. When the democratic presidents were in office (President Obama and now President Biden), the debt grew by $13 trillion. When we combine the amounts of debt incurred by President Trump and President Bush (republican presidents), the debt grew almost the same to $12.7 trillion.
This, of course, doesn’t factor in the aftershocks these decisions end up causing and the ever-increasing debts that can continue to incur because of these choices, even after presidents have left office. For example, there are tax cuts almost 20 years old still chipping away at federal revenues. Charles Balhous, a researcher at George Mason University, made attempts to showcase those actually to blame to try to get some more concrete figures on who’s causing the debts to get so high. For example, for the debt growth in 2021, when President Trump was already out of office, his decisions spilled into the Biden administration when it was truly Trump to blame.
