“the Treasury Department issued another reminder about the cost of doing nothing to change course. The national debt hit $36 trillion—less than four months after surpassing the $35 trillion mark.
Evenly divided, that means every American is now six figures in the red, thanks to the decisions made in Washington, D.C., over the past few decades. The trajectory ahead looks no better. The federal government is on pace to run multitrillion-dollar deficits for the foreseeable future—and that’s the rosy scenario, which assumes no recessions, wars, pandemics, and the like. Measured against the size of the U.S. economy, the debt is approaching the record high set in the final year of World War II. The rising debt means higher annual interest payments that will complicate the federal budget, likely require higher taxes, and make everyone poorer.”
The debt is a huge problem and we need bi-partisan solutions to fix it.
Solutions that the incoming administration have proposed like cutting 70% of the federal workforce: demonize the bureaucracy, will make government function poorly, and are bad ideas.
“The federal government posted a $1.8 trillion budget deficit during the fiscal year that ended on September 30, despite an increase in tax revenue, thanks to higher spending and the rapid growth of interest costs tied to the $35.6 trillion national debt.”
“According to brand-new Congressional Budget Office (CBO) numbers, the 2024 budget deficit is around $1.8 trillion. It’s heading to $2.8 trillion in 10 years, assuming a very rosy scenario. Worrisome too is that interest payments on government debt will eat up over 20 percent of revenue in 2025. As the Hoover Institution’s Joshua Rauh noted, if you remove the revenue earmarked for the Social Security Old Age and Disability Insurance program, that number jumps to 27.9 percent and rising.”
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“Three months into the term and four months after the last $900 billion COVID-19 relief bill, the Biden-Harris administration pushed through another $1.9 trillion bill. This spending was so out of proportion with the state of the economy, which faced an output gap of only $420 billion, that we suffered the worst inflation in 40 years. This wasn’t just a serious hit to the deficit—it also cost the typical family more than $10,000.
The administration then decided to push several large, unpaid-for bills. Riedl lists some: “$1.4 trillion in new spending in omnibus appropriations bills, $620 billion in student loan bailouts, $520 billion for new veterans’ benefits, a $440 billion infrastructure law, a semiconductor bill, and $360 billion in new [Supplemental Nutrition Assistance Program] and health spending forced through by executive order.”
Some economists wrongly insisted that adding debt is no big deal as long as interest rates are low. This condition certainly doesn’t apply to the Biden-Harris spending spree. Add it all up, including interest payments on the debt, and you get $5 trillion on top of what was already there.”
“is DOGE doomed to fail? Not if its architects take a more realistic approach to cutting government. Fundamental reform of Social Security, Medicare, and Medicaid will require delicate, bipartisan negotiations that are already taking place within parts of Congress. Senate Democrats will not back down from filibustering a partisan GOP Social Security plan just because Musk and Ramaswamy recommended it in a report. Nor will Congress suddenly drop its longstanding opposition to eliminating entire federal departments.
Republicans need to stop overpromising and underdelivering on federal budget policy. Congressional Republicans unrealistically promise to balance the budget within a decade while not even attempting to pass any actual legislation slowing the growth of spending. Musk promises to zero out one-third of federal spending, and Ramaswamy pledges to fire three-quarters of federal employees. It’s all bluster to compensate for ultimately doing nothing.”
“To get the debt under control, AAF points out that lawmakers cannot simply focus on the discretionary part of the federal budget—which accounts for less than 30 percent of all federal spending. Meanwhile, so-called “mandatory spending” accounts for more than 60 percent (the rest is interest payments on the debt).
Most of the mandatory spending category is made up of Social Security and Medicare, but several other programs also run on autopilot, including food stamps, federal worker retirement benefits, Obamacare’s health insurance subsidies, and veterans’ benefits.
“Mandatory spending is the biggest driver of the national debt because there is no restriction on the unchecked growth of these programs,” argues AAF’s debt report.
Among the proposals to bring mandatory spending under control, the group argues for means-testing future Social Security cost-of-living adjustments (COLAs) for individuals making more than $1 million annually, stopping President Joe Biden’s student loan cancellation plans, ending Obamacare’s insurance subsidies for wealthy Americans, and the formation of a congressional commission to propose spending cuts.
The group also calls for ending so-called “tax expenditures,” which are forms of spending hidden in the tax code—for example, corporate green energy subsidies delivered in the form of renewable tax credits.
The new document picks up where Pence left off in his failed Republican primary campaign last year. On the campaign trail, Pence talked up the importance of sane fiscal policy and condemned his former boss—Republican presidential nominee Donald Trump—for ignoring the threat posed by runaway borrowing and unsustainable entitlement programs.
Of course, Pence’s campaign never got off the ground in any meaningful sense. Former South Carolina Gov. Nikki Haley had a little more success, but there’s clearly not much of a constituency for serious talk about the debt.”
“Paradoxically, the faster government debt escalates toward an inevitable debt crisis, the less politicians and voters seem to care.”
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“Why are we no longer responding to soaring debt and its economic consequences? While there are many factors, the three most important are these: 1) We’ve convinced ourselves that deficits do not matter; 2) partisan politics and the collapse of lawmaking have turned deficits into a weapon to be politicized rather than a problem to be solved; and 3) few of us are willing to face the unpopular reality that this issue cannot be resolved without fundamentally reforming Social Security, Medicare, and middle-class taxes.”
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“The driver of this debt is no mystery. The combination of rising health care costs and 74 million retiring baby boomers is driving annual Social Security and Medicare costs far above their payroll tax and Medicare premium revenues. These annual program shortfalls—which must be funded with general tax revenues and new borrowing—will exceed $650 billion this year on their way to $2.2 trillion annually a decade from now, when including the interest costs of their deficits. Specifically, by 2034 Social Security and Medicare will be collecting $2.6 trillion annually in revenues while costing $4.8 trillion in benefits and associated interest costs.”
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“Over 30 years, CBO data show Social Security and Medicare facing an annual shortfall of $124 trillion while the rest of the budget is roughly balanced. By 2054, these two programs will be contributing 11.3 percent of GDP to annual budget deficits, or the current equivalent of $3.2 trillion in annual program shortfalls (including the interest costs of their deficits). As for the rest of the budget, CBO projects that tax revenues will continue to rise, and other program spending to fall, as a share of the economy. This means the entire long-term deficit growth is driven by Social Security, Medicare, and the interest cost of their shortfalls.”
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“We cannot grandfather out of reform the 74 million boomers whose costs are driving the $124 trillion shortfall. Nor can we tweak our way out of this. If the system is to be kept afloat, Social Security’s eligibility age must rise, its benefit growth formulas must be significantly curtailed for above-average earners, and its taxes may need to rise too. Medicare premiums must steeply rise for above-average earners, and its elevated costs addressed either with a new choice- and competition-based premium support system or with ambitious price and payment reforms to scale back costly procedures.”
“there is only a decade until Social Security hits a brick wall that will trigger automatic cuts to benefits (and even less time until parts of Medicare go over a cliff). Rather than facing that problem and proposing solutions, however, the Republican Party’s newly adopted platform embraces the plan that the old GOP criticized eight years ago: Do nothing and wait for the consequences to arrive.
In the new platform.. the Republican Party says it will “not cut one penny” from Social Security or Medicare and will also oppose efforts to raise the retirement age.”
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“Choosing to do nothing is still a choice. And we know exactly where the path that both Biden and Donald Trump have picked will end. When Social Security hits insolvency in the early 2030s, beneficiaries will see an automatic cut to their monthly checks. Right now, the trustees that run the program estimate that the cut will be 21 percent, with further cuts likely in future years if nothing changes. This is the outcome that the Republican Party’s new platform promises to deliver.
Indeed, at last month’s debate Trump and Biden both tried to blame the other for trying to change Social Security, while neither presented a workable plan to keep the program solvent or phase it out.”
“The solution to the national debt lies in reevaluating and cutting back on unnecessary and wasteful programs, reforming entitlement programs such as Social Security and Medicare, and implementing a more efficient tax system that encourages economic growth.
But none of this can even begin to happen until politicians perceive a demand for it from the American people. Rising debt reduces investment and can slow economic growth, while increasing worries about inflation and the strength of the U.S. dollar. It reduces confidence in the social safety net and increases the risk of a fiscal crisis. Perhaps when these problems manifest, the voters will demand that politicians take the issue seriously. But by then, it may well be too late for the economic stability and growth we have taken for granted.”
“The hike in bond yields and subsequent rise in mortgage rates caught some people off-guard since there was no comparable reaction after the Standard & Poor’s downgrade. But that took place in different economic times when the U.S. government had more room to maneuver.”
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“”Inflation is the economic equivalent of a partial default. The debt was sold under a 2% inflation target, and people expected that or less inflation. The government borrowed and printed $5 Trillion with no plan to pay it back, devaluing the outstanding debt as a result,” he cautions. “Yes, this is not a formal default. And a formal default would have far reaching financial consequences that inflation does not have. Still, for a bondholder it’s the same thing.”
Having been burned by the U.S. government’s policies, investors perceive it as an increasingly risky borrower, just as Fitch (and S&P in 2011) say. As a result, they demand a greater price to loan the feds money—hence higher bond yields. And since 10-year Treasury yields serve as benchmarks for other borrowing rates, such as mortgages, that means higher cost for average Americans who have little say in D.C.’s financial shenanigans but have to suffer the consequences.”
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“”Such high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook,” according to the CBO.
That means unpleasant consequences not just for government officials, but for those of us who live in the economy they hobble. The government will have to pay more to borrow, and so will we. We’ll do so in a country less prosperous than it should have been.”