Debt Is a No-Show at First Debate

Blog Post
Tuesday, September 27, 2016

The first segment of the first presidential debate between Democrat Hillary Clinton and Republican Donald Trump was dedicated to achieving prosperity.

That provided an opportunity for the moderator to ask about -- and the candidates to talk about -- their respective plans for putting the nation’s projected debt on a sustainable path. It’s hard to see how prosperity can be achieved, or long maintained, with a debt that is projected to reach unsustainable levels.

Unfortunately, the subject was not discussed.

Trump made a couple of passing references to the debt and Clinton noted that Trump’s plan might increase the debt, but neither of them made a connection to the debt as an economic issue, much less described what they would do about it.

That’s too bad because one of these two candidates will become president in 2017 and will immediately be confronted with having to submit a budget to Congress against the backdrop of rising deficits and debt.

Each has made some expensive proposals that would have to be paid for and the American people have a right to know how they plan to do this without making the debt problem worse.

Consider what awaits the next occupant of 1600 Pennsylvania Avenue:

  • For the first time since 2009, the budget deficit is projected to increase this year, going from $438 billion (2.5 percent of GDP) in 2015 to $590 billion (3.2 percent of GDP) in 2016.
  • The upward trend will continue under current law with the deficit reaching $1.2 trillion (4.6 percent of GDP) in 2026, the end of the 10-year projection by the Congressional Budget Office (CBO).  Deficits have averaged 2.8 percent of GDP over the past 50 years.
  • Under current law, federal spending grows from 21.1 percent of GDP in 2016 to 23.1 percent of GDP in 2026. The 50-year average is 20.2 percent of GDP.
  • Revenues will grow as well, from 17.8 percent of GDP in 2016 to 18.5 percent of GDP in 2026, but this growth will not be enough to keep pace with projected spending.  Revenues over the past 50 years have averaged 17.4 percent of GDP.
  • Debt held by the public is projected to grow from 77 percent of GDP this year (the highest level since 1950) to 86 percent in 2026, far above the average over the past 50 years (39 percent of GDP).
  • Beyond the 10-year window, CBO projects that the debt will continue rising under current law, reaching 141 percent of GDP 30 years from now. The highest recorded debt level in U.S. history is 106 percent of GDP in 1946.

The nation deserves a candid discussion of the budget outlook and the forces that are driving the debt higher: population aging and health care costs.

According to the latest projections by the nonpartisan CBO, 82 percent of the spending growth over the next 10 years will be driven by major health care programs (34 percent of the increase), Social Security (29 percent of the increase), and interest on the debt (19 percent of the increase).

Yet not one word was said in the debate about the growing cost of these items or what might be done to either slow their growth or pay for them.

It’s not as if these numbers have no connection to the future economy.

A high national debt leads to increased government borrowing, which crowds out productive investments in people, machinery, technology and research, resulting in slower economic growth and lower wages.

Growing debt also crowds out public investment by requiring an increasing share of the budget to go towards interest payments instead of into new public investments in education, infrastructure, and research and development.

Indeed, federal investment spending has already been declining for years. Forty years ago the government spent 4.1 percent of GDP and 22 percent of the budget on investments. It now spends only 2.7 percent of GDP and 13 percent of the budget on investments. During that time, transfer payments have increased from 48 percent of the budget to 71 percent.

On the other hand, reducing deficits can be a source of strength. According to CBO, a responsible deficit-reduction plan ($2 trillion over 10 years) could boost real per-person output by about $5,000 in 2046.

The first debate was a missed opportunity to put these issues before the American people and to hear how the candidates respond.

Maybe next time.