The mission of Issues in Perspective is to provide thoughtful, historical and biblically-centered perspectives on current ethical and cultural issues.

In late June, the Congressional Budget Office projected that the federal debt will equal 122% of the United States’ annual economic output by 2034, far surpassing the high set in the aftermath of World War II.  The deficit will swell to $1.9 trillion this fiscal year and keep growing until the overall national debt hits $50.7 trillion a decade from now. The CBO revised its forecast from four months ago, when it projected that the debt would reach $48.3 trillion in 2034, and 116 percent of economic output.  The new figures add to the urgency facing policymakers in 2025. Next year, vast portions of the tax code are set to expire, potentially forcing a steep tax hike on individuals and families. Congress suspended the debt limit in 2023, but that, too, will expire next year, setting up a showdown between the two parties over federal spending.

According to the US Treasury, the US has $34.7 trillion of debt, the vast majority of which is held by the public through bonds and other borrowing instruments. The cost of that debt keeps climbing as the federal government spends more—and must borrow to pay for it. The rest of the debt is held by other government programs, such as Social Security and Medicare that have taken in more money than they’ve paid out.

Gerald F. Seib, former Wall Street Journal executive Washington editor and Capital Journal columnist and now visiting fellow at the Robert J. Dole Institute of Politics at the University of Kansas, observes that “America is cruising into an uncharted sea of federal debt, with a public seemingly untroubled by the stark numbers and a government seemingly incapable of turning them around . . . History, however, offers some cautionary notes about the consequences of swimming in debt. Over the centuries and across the globe, nations and empires that blithely piled up debt have, sooner or later, met unhappy ends.  Historian Niall Ferguson recently invoked what he calls his own personal law of history: ‘Any great power that spends more on debt service (interest payments on the national debt) than on defense will not stay great for very long. True of Habsburg Spain, true of ancien régime France, true of the Ottoman Empire, true of the British Empire, this law is about to be put to the test by the U.S. beginning this very year.’”

• Furthermore, J.H. Cullum Clark, director of the Bush Institute-Southern Methodist University Economic Growth Initiative, “points to the Roman Empire as an early cautionary tale. After establishing their empire as the world’s most powerful, Rome’s leaders began spending lavishly on imperial administration and the army in the third century. Emperors financed the resulting debt by debasing the currency, which generated high inflation. That weakened the empire’s stability and defenses, leading to its demise in the fifth century.”
• “After establishing a foothold in the New World, Spain financed its military adventures and globe-spanning empire with extensive borrowing from abroad and high taxation, eventually losing its status as Europe’s greatest power. In their look at the history of international financial crises, ‘This Time Is Different: Eight Centuries of Financial Folly,’ economists Carmen Reinhart and Kenneth Rogoff note that Spain ‘managed to default seven times in the 19th century alone, after having defaulted six times in the preceding three centuries.’”
• “France traveled much the same path and defaulted frequently on its debt. Ultimately, profligate borrowing and spending by the court at Versailles caught up with the royals, producing deindustrialization and fiscal crises that led to the revolution of 1789.”
• “China’s Qing Dynasty went through a similar cycle and encountered a similar fate. It was a leading world economic power, but spending and foreign borrowing in the 19th century led to damaging underinvestment in the infrastructure needed to keep advancing.”
• “Great Britain may offer the most compelling parallels. It oversaw the world’s most far-flung empire through the 18th and 19th centuries before war spending, including the fight against the American Revolution, produced high debt. It recovered but by the 20th century found that it could no longer afford the spending required to both maintain an army and navy to police the empire and to finance rapidly growing social programs. Debt began crowding out other investments, and economic weakness sapped the strength of the British pound. The pound ceased being the world’s leading reserve currency, and the British Empire soon declined.”

In 2001, the US actually had a cash surplus, when the Treasury collected more in taxes than it spent.  But, since then, four presidents, 10 sessions of Congress and two wars have contributed to the tide of red ink. Social Security and Medicare are growing in cost, further adding to the debt.  Jeff Stein and Alyssa Fowers of the Washington Post provide a wonderful summary of how the US debt has grown these last 20 years.

• “The Bush tax cuts, June 7, 2001:  $5.7 trillion (Total debt).  President George W. Bush signs the first of two major tax cuts into law, slashing rates on ordinary income as well as on capital gains and dividends. In 2012, the Congressional Budget Office estimated that the Bush tax cuts added roughly $1.5 trillion to the national debt. The majority of these tax cuts would later be made permanent in a deal between congressional Republicans and President Barack Obama, adding to their cost.
• Wars in Iraq and Afghanistan, March 19, 2003: $6.5 trillion (Total debt). After the Sept. 11, 2001, terrorist attacks, the United States invades Iraq. America would go on to spend roughly 20 years fighting wars in the Middle East, leading to a surge in spending on the Pentagon and veterans. A Harvard analysis has found that the conflicts in Iraq and Afghanistan cost the nation between $4 trillion and $6 trillion.
• Prescription drug expansion, Jan. 1, 2006:  $8.4 trillion (Total debt).  Medicare Part D—a major expansion of Medicare that offered prescription drug coverage to seniors—goes into effect nearly three years after being signed into law by Bush. Republicans who controlled Congress did not pay for the popular, but expensive, initiative.
• 2008 recession and response, Feb. 17, 2009:  $11.1 trillion (Total debt).   A crisis in financial markets triggers the Great Recession, the worst downturn since the Great Depression. This dramatically expands the national debt in two ways: First, there is a sharp drop in tax collections. Second, there is a big jump in spending on increased unemployment benefits and other programs to help people weather the downturn. Congress and the Obama administration also approved a major economic stimulus package. Brian Riedl, an economist at the Manhattan Institute, estimates the Bush and Obama administrations together enacted about $2 trillion in emergency measures to respond to the financial crisis and the ensuing recession.
• Obama-Republican deal to extend Bush tax cuts, Jan. 1, 2013:  $16.8 trillion (Total debt).  With the Bush tax cuts set to expire amid a sluggish recovery, Obama agrees to make almost all of them permanent, extending tax relief for all but the very richest Americans. Congressional Republicans, in turn, agree to extend some economic stimulus measures. At the time, the Congressional Budget Office estimated the deal would cost roughly $4 trillion over 10 years.
• The Trump tax cuts, Dec. 22, 2017:  $20.5 trillion (Total debt). President Donald Trump signs a sprawling tax cut bill, centered on a plan to reduce the rate paid by large U.S. corporations from 35 percent to 21 percent. The law also cut taxes for most individual taxpayers. The congressional Joint Committee on Taxation estimated the measure would cost roughly $1.5 trillion over 10 years. A later analysis by the Committee for a Responsible Federal Budget, a Washington think tank, found the cumulative impact of the law could be closer to $2.9 trillion if Congress votes to extend certain provisions, which are set to expire in different years throughout this decade.
• Bipartisan spending deals under Trump, Aug. 1, 2019:  $22.7 trillion (Total debt). Democrats and Republicans in Congress agree to ramp up federal spending as Trump disregards Republican orthodoxy on shrinking the size of government. It is the second such deal in two years. The spending helps fuel a strong labor market but exacerbates budget deficits. The bills add a combined $2 trillion to the national debt, according to the Committee for a Responsible Federal Budget.
• Congress spends trillions in coronavirus emergency response, Dec. 27, 2020:  $27.7 trillion (Total debt).    Trump signs into law the second of what will eventually be three major relief packages approved by Congress in response to the coronavirus pandemic. The first and most expensive is a bipartisan $3.4 trillion deal reached in March 2020, with the U.S. economy in a black hole. An additional $900 billion follows in December 2020. In 2021, Democrats under President Biden approve an additional $1.9 trillion with no Republican support.
• The Biden economic agenda, Jan. 1, 2024:  $34.5 trillion (Total debt). Biden has successfully pushed Congress to spend more on veterans’ health, physical infrastructure and government agencies. Biden’s Inflation Reduction Act also spends more on an array of other programs, including the Internal Revenue Service, but is projected to slow borrowing by imposing higher taxes on businesses. Spending agreements between Biden and House Republicans do restrain budget growth slightly this year, but a new debt ceiling fight and expiring tax cuts that could add trillions more to the debt may make 2025 another pivotal moment.”

Finally, William A. Galston of the Wall Street Journal argues that there are several incontrovertible facts about the US debt.

• “The CBO is required to base its projections on current law, under which the tax cuts enacted in 2017 will expire at the end of 2025. Neither Mr. Biden nor Mr. Trump plans to end all the cuts, but both their proposals remain vague. The CBO and Joint Committee on Taxation estimate that extending the Trump-era tax cuts for another decade would increase the federal debt by an additional $4.6 trillion . . . .”
• “We’re backing ourselves into a fiscal corner.  Annual outlays for Social Security will rise by about $1 trillion over the next decade, as will outlays for Medicare. But Mr. Trump has ruled out cuts to these programs, bringing his party into alignment with the Democrats’ longtime stance. Nor will Republicans accept tax increases. Meantime, projected defense spending falls far short of what will be necessary to protect the U.S. in an increasingly dangerous world. And there won’t be any room for additional domestic spending on young families with children. Taking the path of least resistance—increasing spending without increasing revenue—will make a bad fiscal situation worse.”
• “Add to this that the U.S. is a rapidly aging society. Americans 65 and older made up 9% of the population in 1960. Today, this figure is 18%, and it’s projected to rise to 23% over the next three decades. As older Americans’ share of the electorate increases, so will the cost of guaranteeing them basic income and medical security. I doubt many elderly voters will rally around a fiscal strategy that reduces their benefits.”

Continuing on our current fiscal course will mean a gradual loss of America’s financial independence followed by an abrupt economic decline. “The U.S. will have to ask the rest of the world to finance its debt, and it’s reckless to assume that other nations will do so indefinitely. The risk is that countries the U.S. relies on will draw back gradually—and then suddenly, when some unforeseen shock crystallizes their mounting doubts.”

As David Brooks so poignantly puts it:  The US has embarked on a gigantic gamble.  “It’s a gamble that rosy scenarios about future inflation and interest rates will come to pass.  It’s a gamble that nothing unexpectedly bad will happen in the world.  It’s a gamble that our leadership class is so good at what it does that we can continue to walk along the cliff’s edge without any danger of falling over.  At some point this self-confidence begins to look like hubris or a rationalization for:  We want to spend the future’s money on ourselves.  Prudence is [such] a boring virtue . . . .”

The solution to the debt crisis is not rocket science.  Two simple facts obtain:  There must be increased revenue and there must be reduced spending.  But to accomplish both there must be a willingness within both political parties to compromise.  Both parties must agree to spending cuts. Republicans must accept the fact that taxes will need to go up.  Democrats must also recognize that changes to Social Security and Medicare are necessary, since both are major drivers of federal spending.  Without the willingness to compromise, the future for the US is fiscally unsustainable.

See Jacob Bogage, “National debt will exceed $50 trillion by 2034, budget watchdog estimates” in the Washington Post (18 June 2024); Jeff Stein and Alyssa Fowers, “See how the national debt grew to more than $34 trillion” in the Washington Post (18 June 2024); Gerald F. Seib, “Will Debt Sink the American Empire?” in the Wall Street Journal (22-23 June 2024); William A. Galston in the Wall Street Journal (26 June 2024); and David Brooks in the New York Times (26 April 2024.)