Former Vice President Joe Biden and President Donald Trump are both signaling a continued expansion of the US debt, which is already at record levels. The ways they will do this, however, could not be more different.
The coronavirus pandemic and its subsequent economic fallout have seen the United States debt rocket to record levels that are unlikely to go down anytime soon.
Total US debt now stands at some US$27 trillion, with the US Treasury reporting a US$3.13 trillion deficit so far for the 2020 fiscal year as of September.
This rapid increase in the debt was occurring even before the coronavirus pandemic took hold. Under President Donald Trump, debt has not only climbed faster than under any other president on record, but it has also reached the highest level in history.
While a change of administration could be on the cards in January 2021 should polling prove to be accurate, the debt and deficit are unlikely to change themselves. Former Vice President Joe Biden, the Democratic challenger, has committed to an ambitious spending program that will see the debt balloon further as the US continues its recovery from the pandemic.
For now, some argue, an expansion of the debt and deficit is tolerable and even former deficit hawks are cautioning that the economic recovery, and not concerns over the debt, should come first.
Both Biden and Trump are signaling a continued expansion of the US debt. However, the ways they will do this could not be more different.
Even before the coronavirus pandemic, US debt was projected to increase significantly.
In 2017, US debt stood at around US$19 trillion dollars, with the debt ceiling preventing it from rising above US$20 trillion. Then-candidate Trump had pledged during his presidential campaign to reduce the US debt in eight years through a combination of tax cuts, cutting waste and renegotiated trade deals.
In September, several months into his first year as president, Trump signed the first piece of legislation expanding the US debt ceiling, with US debt that month climbing above US$20 trillion for the first time in history.
Trump’s expansion of US debt has been exacerbated by massive tax cuts and continued high spending. The 2017 Tax Cuts and Jobs Act, in particular, slashed taxes for corporations and high-income earners, which proponents believed would then be put back into the economy to stimulate growth.
Despite these tax cuts, President Trump remained committed to massive federal deficit spending. For the 2020 fiscal year, Trump unveiled a defense budget of US$936 billion, nearly US$100 billion more than the record-breaking military spending achieved in 2012.
The coronavirus pandemic only served to compound these long-standing debt and deficit problems. As a result of trillions of dollars worth of economic stimulus for an ailing economy, the US Treasury reported that for the 2020 fiscal year, the deficit stood at US$3.13 trillion, with the total US debt now nearing US$30 trillion overall.
Despite climbing to record levels, it is likely that whoever occupies the White House at the end of January 2021 will oversee a further expansion of the debt.
White House press secretary Kayleigh McEnany told Fox News in September that President Trump would make the US debt a “big second-term priority.” But the president’s own record and statements suggest that an increase in the national debt is on the cards should he be reelected.
The president has stated that he intends to extend his record tax cuts further if he wins a second term and he’s also committed to making “permanent cuts to the payroll tax.” Recent comments suggesting he is now (after much confusion and conflicting statements) in favor of a bigger stimulus than that proposed by Democrats also raises the potential for even greater US debt.
Should Trump be reelected, it is likely that the US debt and deficit spending will continue to rise, fueled by tax cuts for wealthy individuals and corporations while massive federal spending on the military, in particular, continues unabated.
It is almost certain that US debt will continue to expand under a potential Joe Biden administration as well, but for vastly different reasons.
Biden’s economic platform has promised trillions of dollars worth of investment in the US economy, as well as a reversal of Trump-era tax cuts. This is in addition to any spending dedicated to continue the response to the coronavirus pandemic, which will likely continue late into 2021.
In particular, the Democratic challenger’s platform aims to invest billions in American industry to encourage domestic innovation, as well as an ambitious green policy that is promising trillions of dollars worth of funding into green energy sources as part of a “Clean Energy Revolution.”
While this spending, on top of spending needed to ensure a full recovery from the coronavirus pandemic, will undoubtedly further expand the US debt, some economists believe it is nothing short of a necessity.
Writing for The New York Times, the economist Paul Krugman believes that, should Biden win, he should “spend a lot of money on the future” and “not worry about where the money is coming from.”
Krugman argues that, given the present economic upset caused by the pandemic, “large-scale deficit spending isn’t just OK, it’s the only responsible thing to do.” This spending will serve both a humanitarian purpose in saving American jobs and livelihoods, but will also “help avoid a downward economic spiral, by heading off a potential collapse in consumer and local government spending.”
Analysts appear to agree that deficit spending is a necessity, not just to ensure the economy recovers from the coronavirus but to spur future growth as well. Analysis by the financial firm Moody’s has shown that a Democratic sweep of the House, Senate and presidency would “deliver the fastest growth — because it would enable the biggest deficits.”
Moody’s is projecting that Biden’s spending would push real GDP 4.5% higher than a continuation of President Trump’s policies, while Goldman Sachs envisions a 3.7% increase, even if this spending would expand the debt in the meantime.
Whoever occupies the White House in January 2021 faces a consensus of economists across the political spectrum who believe that further deficit spending and an expansion of the US debt, in the face of the continuing pandemic, is a necessity.
Federal Reserve Chair Jerome Powell, a noted deficit hawk in the past, has warned that an insufficiently funded recovery would fail to recharge the US economy and that “this is not the time to give priority” to debt concerns.
The economist Michael R. Strain has also argued in Bloomberg that “this year’s enormous deficit was justified” and “the economic emergency facing the U.S. requires additional deficit-financed spending, as well,” even if future cuts may eventually prove necessary.
Ultimately, an expansion of the US debt and continued deficit spending appears a given, regardless of whether a Republican or Democrat wins the White House on November 3.
But the ways through which this debt will be expanded, by tax cuts or by expanded government spending, could not be more different, signaling two very different futures united by one common theme – more American debt.
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