America's $22T debt problem: With a booming economy, now is the time to fix it
By the most straightforward measurements, the U.S. economy is in great shape.
According to the Bureau of Labor Statistics, the unemployment rate has hovered around 4 percent since the start of 2018, and there are now more job openings than there are people looking for work.
This good news helps explain why a recent piece of bad news is so hard to believe. This week, the national debt crossed the $22 trillion threshold.
Since that number is utterly impossible to comprehend, a better explanation would be a comparison. According to the Bureau of Economic Analysis, the U.S. economy produces more than $20 trillion a year. This means if we could take every penny that is made by the 328 million Americans over the course of 365 days, we still couldn’t pay off the national debt.
To put it another way, every American’s share of the debt is about $67,000. Newborns take their first breath and immediately owe an amount comparable to the purchase price for a new luxury car.
Regrettably, things only get worse from here.
The Congressional Budget Office projects that another $12.2 trillion in debt will be added over the next decade, an amount that could easily mean $100,000 owed by every man, woman and child alive in 2029.
“How did we get here?” is both an easy and a complicated question to answer.
The easy answer: politicians love spending money, but know that Americans hate taxes. Because of this, they borrow hundreds of billions of dollars every year to fill the gap.
The complicated answer is that hundreds of pieces of legislation passed by both parties have contributed to the debt. While fighting about the past by throwing blame around can be fun for some, what matters most is figuring out what’s wrong now and what we can do about it in the future.
Federal spending in the most recent fiscal year was $4.1 trillion. To put that into perspective, $4.1 trillion is larger than the combined economies of 16 mid-sized states, including Arizona, Colorado, Iowa, Missouri, Nevada and Wisconsin.
That is simply too much government for Congress to oversee, and too much power and control to be concentrated in Washington, D.C. Left-leaning pundits and politicians think the problem is that taxes are too low. In reality, tax revenue as a share of the economy is expected to be in line with historical averages over the next decade.
The real reason why annual deficits have increased so rapidly and are projected to increase even more is that federal spending consistently grows faster than the economy.
A primary cause of the spending growth can be linked to health-care programs such as Medicare and Medicaid, and the Social Security retirement program. As the Baby Boomer generation retires, these programs are expected to account for 63 cents of every new federal dollar spent over the next 10 years.
Elected leaders have long avoided reforms to these programs that would make them sustainable for the long-term. Changes focused on controlling the growth of future benefits can seriously improve the nation’s bottom line without harming retirees.
The most important and powerful change that could be done right now would be for lawmakers to implement an overall spending cap that fits within current levels of taxation. This approach has done wonders for Switzerland, which avoided large debts by prioritizing what taxpayer dollars should be spent on.
One would think that Congress already has spending caps in the form of the annual budget. However, the budget process has completely broken down, and they often avoid the responsibility of budgeting.
Perhaps they would act more responsibly if the paychecks for these senators and representatives depended on having to do their job.
Another urgent matter is restoring a real limit on the nation’s debt. Currently, the debt limit is “suspended” through March 1, meaning politicians can add as much debt as they want without immediate consequences.
A numerical debt limit should be put in place as soon as the suspension ends. Any subsequent increase to the debt limit must be linked to enforceable spending reforms, with a goal of bringing the federal budget to balance within the next decade.
Congress should, at a minimum, match a dollar of debt limit increase with a dollar of real spending cuts.
These changes would force Republicans and Democrats to make politically difficult choices. The alternative choice, to spend and spend and spend, is the easy one today. But handing the bill to those yet to be born is a serious injustice.
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The best time to set the stage for a balanced budget is during a roaring economy. Failing to take advantage of today’s prosperity could doom future generations to high taxes and economic stagnation.
America’s children deserve better than that.
David Ditch is a researcher in the Grover M. Hermann Center for the Federal Budget at The Heritage Foundation (heritage.org).