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National debt is on track to exceed record highs in the next few years. Inflation is at a 40-year high. We need to put in place a balanced, bipartisan debt reduction plan to curb inflation, reduce debt and boost long-term economic growth – around $7 trillion in savings would be enough to keep the debt from spiraling out of control.
But given that the two parties are at each other’s throats and can barely agree on anything, let alone trillions of dollars in difficult things like spending cuts and tax increases, that seems unlikely anytime soon.
So how about we start with small steps: What if members of Congress and the President agreed not to take on any new loans for the remainder of 2022. It’s only 45 days.
Public debt has skyrocketed in recent years, rising from about 80% of the economy in 2019 to 97% today. Under current law, we estimate it will continue to rise to 116% of production in just a decade – 10 percentage points above the previous record post World War II. Under a more pessimistic set of economic and political assumptions – with politicians extending various expiring provisions – we find that debt could reach 138% of the economy.
Some of the recent borrowing was justified and even necessary to support the economy during the pandemic and prevent what could be the deepest economic downturn since the Great Depression.
But responsible COVID-19 borrowing has been sandwiched between trillions of reckless unnecessary borrowing. Former President Donald Trump signed $7.5 trillion in new loans, or $4 trillion excluding COVID-19 measures. That $4 trillion was roughly evenly split between unpaid tax cuts and spending increases.
The Biden administration has moved on the trend towards debt, About $5 trillion in new loans have been approved so far, including $1.9 trillion from the American Rescue Plan, $400 billion from the bipartisan Infrastructure Act and the remainder, divided into irresponsible student debt relief, unpaid new Veteran’s Benefits and Other Expense Increases. Even when it came to COVID-19 relief, they went too far and spent far more than necessary, which in turn fueled today’s high inflation. The only glimmer of recent hope, the $240 billion in hard-earned deficit reduction through the Inflation Reduction Act, was quickly wiped out by other deficit stimulus measures.
All this borrowing has consequences. It helped push inflation to its highest level in over 40 years. It is causing interest rates to rise and interest costs to approach record levels. And over time, this will slow economic growth, reduce our ability to deal with new challenges and emergencies, impose unnecessary costs on future generations, and exacerbate all sorts of geopolitical risks.
Unfortunately, politicians seem to want to go in the opposite direction. They are now beginning discussions of a year-end budget agreement that could dramatically expand the discretionary budget while extending, reviving or enacting a series of tax cuts and spending increases. We have estimated that these changes could add between $100 billion and $450 billion to the deficit over the next year and between $650 and $3.3 trillion over a decade.
No politician concerned about debt or inflation can justify supporting such a new debt bonanza. If they want to pay for the new policies, that’s one thing. But they have to draw a line when it comes to taking on new debt in order to restore some credibility to the issue.
So let’s hope it’s not too much to ask for the rest of 2022, a year in which we’ve never bothered to pass a budget and in which we’ve already passed $1.9 trillion of new loans (assuming the President’s potentially illegal student debt scheme). goes through), we can finally step on the brakes and agree on no new borrowing for the rest of 2022.