By Countercurrents Collective
U.S. Treasury Department figures released Friday show: U.S. public debt has surpassed $23 trillion for the first time in history, rising more than 100 percent in less than a decade and more than a trillion dollars this year alone.
Of the total, less than US$17 trillion is owed to individuals, while the remaining $6 trillion comes from loans within government agencies.
The figure marks a new record after the national debt reached US$22 billion dollars in February this year while the fiscal imbalance as a percentage of Gross Domestic Product (GDP) rose from 3.8% in 2018 to 4.6% this year.
According to Michael Peterson, the head of the fiscally conservative Peter G. Peterson Foundation, “reaching a debt of US$23 billion on Halloween is a terrifying milestone for our economy and the next generation, but Washington shows no fear.”
“Accumulating debts like this is especially reckless and unnecessary in a strong economy,” he added.
“This is the first time in our history that we are seeing a boom in the economy at the same time deficits are rapidly rising. It’s alarming,” said Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget, which supports reducing the deficit.
2008 financial crisis
U.S. debt began to rise after the 2008 financial crisis, but after Trump came to power it declined slightly. Thus, in January 2017, the national debt was estimated at $19,899 billion.
However, due to the fiscal reform, at the end of that year, it started to grow again and by the end of 2018, it amounted to 21,974 billion dollars.
U.S. President Donald Trump, who repeatedly criticized the deficit of his predecessor, Democrat Barack Obama, looks now responsible of the U.S. deficit rising almost 50 percent in his first three years in office.
Growing budget deficits have added to the U.S. debt at a speedy rate since President Trump took office. The debt has grown some 16 percent since Trump’s inauguration, when it stood at $19.9 trillion. It passed $22 trillion for the first time just 10 months ago.
Of the $23 trillion figure, just under $17 trillion was in the category of debt held by the public, which is a more useful gauge of the debt the government has to pay down, and the number typically used in calculating the nation’s debt burden. The other $6 trillion comes from loans within government bodies.
Still, the $23 trillion figure marks a milestone.
High levels of debt can push up borrowing costs and interest rates, “crowd out” private borrowing and weigh down budgets.
In the 2019 fiscal year, the government had to devote $376 billion just to pay the interest on the debt, equivalent to nearly half the defense budget, and more than the amount spent on the combined costs of education, agriculture, transportation and housing.
The deficit for 2019 came in just under $1 trillion, at $984 billion, and is only expected to grow in coming years.
Trump administration officials did not defend the marked deficit increase, but they cast blame on Congress for not doing more to reduce expenditures.
While the main drivers of spending are mandatory programs such as Social Security, Medicare and anti-poverty programs, major legislation has grown the deficit considerably since Trump came to office.
Neither Trump nor Congress
Neither Trump nor Congress has done much to cut spending in recent years, with Trump repeatedly backing away from his own budget proposals. Trump has also demanded new spending on the military and for a border wall.
Dramatic rise in military spending
Military spending has risen dramatically under Trump, from about $550 billion annually to more than $700 billion in 2019, and Democrats successfully pushed for increases to other parts of the budget in exchange for their support to boost money for defense.
Republicans are quiet
Though the total national debt has continued to grow under the Trump administration, Republicans have remained quiet over an issue they once championed.
The national debt was formerly a major Republican talking point against “debt king” Obama, so much so that Republicans shut the government down for 16 days in 2013.
“There are very little discussions among Republicans about the deficit and virtually no serious outreach to Democrats for any sort of bipartisan deal,” said Brian Riedl, a budget expert at the Manhattan Institute, a libertarian-leaning think tank, and former chief economist for Sen. Rob Portman (R-Ohio). “The parties are not talking on this issue.”
The Republican National Committee slammed Obama’s oversight of the federal deficit in 2011, saying that the deficit held “America’s future in the balance” and saying that Democrats failed to recognize “that our mounting debt is one of the biggest threats to our ability to compete with the rest of the world’s economies.”
As late as 2016, the GOP warned that Obama administration was on an “unsustainable path toward crippling debt while raising taxes on middle-class families who can’t afford it.”
GOP Sen. Mitch McConnell of Kentucky called the federal debt “the nation’s most serious long-term problem,” on CBS’s “Face the Nation” in 2012, adding that Obama “needs to become the adult” in conversations on debt.
“If we don’t begin to deal with our debt and deficit in a serious way, we’re not going to have many options,” said former Republican House Speaker John A. Boehner in 2012, according to The Washington Post. “I’m not going to apologize for leading. The real issue here is, will the president lead?”
Boehner added in 2013 that the debt was “killing our economy.”
“It’s causing investors to sit on their cash,” Boehner said, according to The Wall Street Journal. “They’re afraid to invest. It’s a wet blanket on top of our economy.”
In 2013, when federal debt totaled $16.7 trillion, Trump tweeted: “Obama is the most profligate deficit & debt spender in our nation’s history.” The federal government is now more than $22 trillion in debt, according to the White House.
Vice President Pence called the debt increases under the Obama administration “atrocious.”
Mick Mulvaney, the president’s acting chief of staff, held “Spending, Debt and Deficit” town halls during the Obama administration and repeatedly criticized lawmakers of both parties for increasing the deficit, including through funding relief for Hurricane Sandy.
Spending increases, tax cuts and political apathy fueled the surge in deficit.
The government spent $4.4 trillion on numerous programs and services and brought in $3.5 trillion through taxes and other revenue.
It is unusual for the government to run such a large budget deficit during a period of economic growth, because spending on unemployment and other benefits tends to contract and tax revenue often grows.
But the White House and Congress have contributed to the deficit’s surge by enacting large spending increases and passing the 2017 tax cut law. The budget deficit was $665 billion in 2017.
U.S. debt is considered one of the safest investments in the world and interest rates remain low, which is why the government has been able to borrow money at cheap rates to finance the large annual deficits.
But the costs are adding up. The government spent about $380 billion in interest payments on its debt last year, almost as much as the entire federal government contribution to Medicaid.
The Obama administration and Republicans in Congress enacted measures to reduce the deficit starting in 2011, and those measures — and a growing economy — led the deficit to fall by almost 50 percent.
But those gains were lost by a recent apathy among policymakers about addressing the fiscal imbalance.
The government recorded four straight years of budget deficits that exceeded $1 trillion around the time of the Great Recession, with the worst overrun occurring in 2009 when the deficit reached nearly 10 percent of the U.S. economy, the highest level since World War II.
A growing economy and steps taken by the Obama administration and Congress shrank the deficit to 2.4 percent of the economy in 2015, but it slowly began expanding again, largely because of spending increases. In 2019, the deficit was 4.6 percent of the economy.
Budget experts also say the tax cut has led revenue to come in lower than they normally would during an economic expansion.
U.S. tax revenue remained roughly flat the first year the law was in effect, despite economic growth of nearly 3 percent. Tax revenue was modestly higher in fiscal 2019, aided in part by a 70 percent increase in tariff revenue.
Overall spending is projected to rise by about 16 percent between 2017 and 2020, largely because of bipartisan deals struck by Congress, including a 2018 law that lifted spending limits and disaster relief funding, according to the Committee for a Responsible Federal Budget.
The leading Democratic presidential candidates are running on plans for enormous new spending programs that would likely add to the deficit, though some have said they will offset the costs with tax increases.
Republicans have demonstrated little appetite for raising tax revenue after dramatically slashing them in 2017.
U.S. fiscal outlook could deteriorate even further should interest rates rise. The Federal Reserve has kept interest rates relatively low during this recovery, reducing the cost of borrowing and easing concerns that the deficit could trigger runaway inflation.
U.S. expanding federal deficit is an anomaly among developed nations around the world. Nearly all other advanced-economy countries are on track to see their debt shrink as a share of their economy over the next five years, according to the International Monetary Fund.
Some economists, particularly on the left, warn against expressing alarm over the widening deficit, arguing that because inflation remains low there is little reason to fear higher deficits.