CHRIS EDWARDS, CATO INSTITUTE
Biden’s budget‐busting Build Back Better plan has been beaten back, but federal finances are still badly broken. Spending is running far ahead of revenues, and politicians are adding more than $1 trillion a year to the government’s debt load.
For years, both parties have increased spending and debt with little regard for the long‐term costs. Accumulated federal borrowing (“debt held by the public”) increased $3.0 trillion under eight years of George W. Bush, $8.1 trillion under eight years of Barack Obama, $7.2 trillion under four years of Donald Trump, and it will about $2.9 trillion under the first two years of Joe Biden. One reason the Republican Party should move beyond Trump is that he was a big spender and the country needs new leadership that takes the debt threat seriously.
Federal debt now stands at almost $24 trillion—the same size as gross domestic product (GDP)—and it amounts to about $187,000 for every household in the nation. Without budget reforms, rising debt will precipitate an economic crisis. Statistical studies show that government debt is likely already slowing our economic growth. Borrowing from the future to spend today also undermines democracy because it ties the hands of future generations and imposes costs on them without their consent.
Debt is only part of the damaging financial legacy politicians are bequeathing to America’s youth. The government has created massive unfunded promises for Social Security and Medicare. The actuaries of these programs estimate that unfunded benefits in present value terms are $60 trillion and $103 trillion, respectively. Those are the promised future benefits less projected program incomes.
The unfunded costs of these two entitlement programs dwarf the federal debt, as shown in the chart. The only good news is that unfunded entitlement costs can be, and should be, cut. By contrast, debt must be paid. Brian Riedl takes a detailed look at the drivers of spending and debt here.
Government debt is unfortunately not a top voter concern right now, and the current Democratic administration appears uninterested in tackling the problem. But the economy and inflation are top concerns of voters, so Republicans have an opportunity to craft a budget reduction plan aimed at boosting growth and taming prices. Republicans have been busy criticizing Biden’s failings, but they also need a fiscal plan of action should they win congressional majorities in November.
The chart shows infinite horizon estimates of the unfunded obligations of Social Security and Medicare from the trustee reports here (p. 208) and here (p. 223). These estimates were as of January 2021. A Treasury report summarizes data on the government’s unfunded obligations here (p. 201).
The GDP and debt in the chart are estimates for 2022 from CBO.
The presidential debt increases were calculated from the end of the fourth quarters after elections, which approximates presidential terms. For example, Trump’s debt increase was measured from the end of fourth quarter 2016 to the end of fourth quarter 2020. Treasury debt data is charted here. The Biden increase was estimated based on CBO’s projections.
Chris Edwards is the director of tax policy studies at the CATO Institute and editor of www.DownsizingGovernment.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation.