Mr. President: Fix the debt
On Jan. 20, Joe Biden took the presidential oath of office. In his inaugural address, President Biden touched upon fundamental issues impacting the country, including the urgent need to cure COVID-19, job loss, racial inequality, environmental degradation and the extremist assault on governmental legitimacy. But at least one essential issue was noticeably absent from his inaugural address — the looming national debt.
American public debt currently totals nearly $28 trillion. This amounts to over 120 percent of gross domestic product, making it one of the highest debt-to-GDP burdens in the world. By comparison, Argentina, which has suffered through a massive sovereign debt crisis for years, has a lower debt-to-GDP ratio than the United States. In fact, the Congressional Budget Office (CBO) warned in December that 2020’s federal budget deficit of 14.9 percent was the largest since World War II, that this deficit was already large by historical standards before accounting for the subsequent cost of COVID relief and that the country was on the road to its highest ever debt-to-GDP level, which we have likely already attained.
Our path toward exorbitantly high debt is not hard to explain. We invested heavily in military spending and tax cuts under President Reagan. President George H.W. Bush was subsequently forced to address the ballooning debt by raising taxes, and President Bill Clinton attempted to steer the country back in the right direction by paying down the debt. But President George W. Bush decided to advocate for tax cuts, increase Medicare spending and launch costly wars abroad. The Bush and Obama stimulus plans helped the country rebound from the Great Recession, however not without adding to the debt. President Trump subsequently inherited a booming economy, but chose to increase the debt through expensive tax cuts and poorly targeted COVID relief legislation, rather than reducing the debt.
The astronomical debt load that President Biden inherited should hang as a specter above our national politics. It should mean that current taxing and spending decisions are made with full regard to the amount of money that we already owe lenders, rather than with regard to how we would like our government to tax and spend in an ideal world. Yet, in practice, our existing debt load means that the federal government will spend an increasingly large percentage of each year’s federal budget simply paying for previous years’ spending choices. Our large debt also makes us reliant on low interest rates that may not be sustainable and hamstrings our ability to respond to large scale crises down the road, such as another economic downturn, pandemic, natural disaster or war.
To address America’s high debt level, President Biden should look to the advice laid out by experts over the past decade on how to most effectively cut spending, increase revenue and promote growth. For example, a December 2020 CBO report provided 83 options to increase revenue or decrease spending. The most potent of these options would be imposing a 5 percent value added tax, taxing greenhouse gas emissions, increasing individual tax rates, reducing the Department of Defense’s budget and implementing numerous other enumerated policies. The 2010 Simpson-Bowles Plan, 2013 Domenici-Rivlin Plan and Brookings Institution’s Fiscal Ship likewise make clear that there is no single magical formula for paying down the debt, but instead a multitude of choices that must be made in order to sustain our country’s spending and borrowing abilities for the long haul.
Sadly, there are spoilers in the Democratic and Republican parties who would rather boost their personal profiles or promote extreme ideologies, rather than make responsible decisions to safeguard our financial future. On the left, Democratic socialists and their allies promote ideas such as Modern Monetary Theory, which would increase inflation or else further balloon the debt. On the right, the Trump administration erroneously promoted growth as a viable debt reduction strategy, and those who seek to starve the beast ignore both the enormity of our outstanding debt and the essential benefits that the federal government provides to those it serves.
President Biden would be wise to ignore these spoilers and make paying down the debt among his highest priorities in order to lessen the severity of the budget cuts and tax increases that will be needed in a few short years. This may not sound very exciting; however, these measures are essential for our long-term safety and stability. When President Biden submits his first budget to Congress in just a few days, he should therefore offer a courageous budget based in reality, rather than a bloated budget at the expense of our future. After all, a budget is a statement of values, and values do not exist in a vacuum.
Harry W. Baumgarten served as legislative director and counsel to members of the House of Representatives. A student of the late Dr. Alice Rivlin, he dedicates this op-ed to her memory.