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That Hillary Clinton and Donald Trump are ignoring the United States government’s debt problem as they campaign for the presidency is the consensus of former Federal Reserve Chair Paul Volcker and former Commerce Department Secretary Peter Peterson, who recently co-authored an op-ed in the New York Times. They describe their dismay with both candidates:
Together, the two of us have 179 years of life experience and 13 grandchildren. We have served presidents of both parties. We have seen more campaign seasons than we care to count — but none as strange as this one.
Insults, invective and pandering have been poor substitutes for serious debate about the direction in which this country is going — or should be going. And a sound and sustainable fiscal structure is a key ingredient of any viable economic policy….
Unfortunately, despite a brief discussion during the final presidential debate, neither candidate has put forward a convincing plan to restrain the growth of the national debt in the decades to come.
Throughout the campaign, Donald J. Trump has called for a combination of deep tax cuts that appear to far exceed proposed spending reductions, at the clear risk of substantially increasing the ratio of debt to G.D.P. Hillary Clinton has set out more balanced and detailed proposals, but they would still fail to stabilize and reduce our debt burden.
The Mercatus Center’s Veronique de Rugy shares Volcker’s and Peterson’s dismay at the candidates’ lack of coherent fiscal policy. She writes on Hillary Clinton’s fiscal promises following the third and final presidential debate of the 2016 election:
On the issue of the size of government, the debt, and deficits, I again found that neither candidate is serious — and a few claims made last night were actually quite laughable.
Take Clinton. She claimed that her high-taxes, high-spending plan would not add a penny to the national debt. But nothing could be further from the truth. Public debt stands at 77 percent of GDP (gross debt is over a 100 percent). Her plan would increase the national debt by $9 trillion, from $14 trillion today to more than $23 trillion in a decade (or 86 percent of GDP) according to an analysis by the Committee for a Responsible Federal Budget. And that doesn’t even take under consideration her new and expansive child-tax credit.
Now, maybe she was trying to be clever by arguing that her plan wouldn’t increase the debt more than the current projections by the Congressional Budget Office (CBO). As I mentioned yesterday, CBO projects an increase from 77 percent of debt to GDP today to 86 percent in 2026. However, if she wants to brag about maintaining the status quo, she is fiscally irresponsible at best. Without even taking under consideration that CBO projections are likely too optimistic, CBO also projects that our debt will grow to reach 150 percent of GDP in 30 years. And that number doesn’t include unfunded liabilities, which — depending on the scholars and the methodology — may range from $55 billion to $200 trillion. Ouch. Even without going that far, most economists on the right and the left agree that persistently high and increasing levels of national debt correlate with diminished economic growth. Not to mention that it is really crappy to leave future generations to deal with that mess.
So Clinton’s plan increases the debt a lot, and not surprisingly it also would “reduce GDP by 1 percent over the long-term due to slightly higher marginal tax rates on capital and labor,” according to the Tax Foundation. Under her plan, the ten-year GDP growth will be depressed by 2.6 percent, while capital investment will be depressed by 7 percent and wages will go down by 2.1 percent. No thank you.
The problem is actually considerably worse than De Rugy describes. Since Hillary Clinton’s proposed spending increases are funded by increases in the tax rates that apply to Americans earning over $250,000, whose incomes are the most volatile among all Americans from year to year, if the U.S. economy fell into a recession that causes their incomes to plummet, Clinton’s spending increases would ensure that the U.S. government would suffer an even larger fiscal crisis than it otherwise would because the tax revenue to sustain that extra spending will not be there.
De Rugy also took on Donald Trump’s fiscal proposals:
Unfortunately for us, Donald Trump isn’t any more serious about addressing our debt problem. According to CRFB, his plan would boost the debt to 105 percent of GDP in ten years because revenue would fall quite dramatically. Don’t get me wrong, I don’t have anything against starving the beast, as long as we cut spending at the same time and do not leave future generations paying for it all….
Trump went on to say, “I’m cutting taxes. We’re going to grow the economy. It’s going to grow at a record rate of growth,” and, “Repeal and replace the disaster known as Obamacare.” But as I have said, you can not grow your way our of our debt problem. Also, even though everything he says about Obamacare — the problem of premiums going up, and thereby hurting people and businesses — is correct, repealing Obamacare isn’t enough. Before Obamacare there was — and still is — Medicare. Remember, we spent close to $600 billion on Medicare in 2016.
And then there’s all those other mandatory expenditures that rise year after year without any intervention on the part of the U.S. Congress, including Social Security. De Rugy finds much to fault both Clinton and Trump for not facing up to the source of the nation’s biggest fiscal challenges:
We know Trump doesn’t want to touch Medicare or Social Security. We spent almost $1 trillion on Social Security in 2016. The program has been running a cash-flow deficit since 2010. Its Trust Fund will dry up by 2034 and, when that happens, benefits will be cut by 25 percent. This is not good and doing nothing is not an option. Of course, Clinton is no better on Social Security than Trump is. She want to put money in the Trust Fund by raising taxes on the rich, the same rich, I suppose who will be paying for her free-college-tuition plan. While that may extend the life of the program, it won’t fix anything. And on top of that she wants to increase benefits to low-income earners, without cutting anyone else’s benefits. Her math, as always, doesn’t add up.
Volcker and Peterson call for leadership that hasn’t yet been visible from either candidate:
Delaying action now will make the needed changes only more painful and difficult later on, while also increasing the risk of financial crisis before the reforms are even made. That is why the real debate should begin immediately.
Yet at the final presidential debate, both candidates missed the opportunity to clearly lay out their visions for a fiscally responsible, long-term future for our country. There’s still time to solve this problem. But our next president needs to show leadership in the first months.
Take some advice from two observers who have been around for a while: The long term gets here before you know it.
The clock is already ticking down. President Obama has already made the first cuts to Social Security benefits, including the file-and-suspend enhancement that had been signed into law by President Bill Clinton during his tenure in office, and they didn’t fix the program’s long term funding problems. More such cuts can be expected.