From National Debt to Budget Deficits, America’s Fiscal Health Absent From Election: Economists

(Left) Democratic presidential nominee and Vice President Kamala Harris in Philadelphia on Sept. 17, 2024. (Right) Republican presidential nominee and former President Donald Trump in Flint, Mich., on Sept. 17, 2024. Win McNamee, Scott Olson/Getty Images

America’s fiscal health, from the national debt to the budget deficit, is not a priority for the presidential candidates in this year’s election, say economists.

The national debt currently stands at $35.324 trillion, up by nearly $8 trillion from January 2021. The nonpartisan Congressional Budget Office estimates it is poised to top $50 trillion in the next decade.

The federal deficit has climbed to $1.9 trillion in the first 11 months of the current fiscal year. The budget watchdog projects the annual shortfall will exceed $2 trillion by 2031.

These headline numbers are on top of the long-term unfunded obligations, including Social Security, which faces a permanent deficit of $63 trillion.

Despite these immense numbers, neither Vice President Kamala Harris nor former President Donald Trump are talking about the nation’s fiscal health, according to Carl Tannenbaum, the chief economist at North Trust.

Instead, Tannenbaum says, the presidential candidates are proposing “politically appealing but fiscally worrisome” policy proposals.

“Third-party projections show that both party platforms will likely add significantly to the national debt,” he said in an analytical note on Sept. 20.

Economists at the University of Pennsylvania’s Penn Wharton crunched the numbers recently and broke down the candidates’ tax and spending ideas.

Harris would potentially increase the federal deficit by between $1.2 trillion and $2 trillion over the next 10 years, according to the business school’s projection of policy proposal effects. Conversely, Trump could boost the budget deficit by between $4.1 trillion and $5.8 trillion.

Both campaigns have stated that their respective candidates’ initiatives would raise revenues and offset spending hikes or tax cuts. However, the federal government’s fiscal health requires serious proposals, said Kent Smetters, a professor of business economics and public policy at Penn Wharton.

“Climbing federal debt will eventually cause the U.S. fiscal house to burn down, and both candidates are only arguing over the furniture,” Smetters told The Epoch Times on Sept. 25.

Any potential improvement to the federal government’s fiscal situation might require focusing on one of four major spending drivers: defense, health care (Medicare and Medicaid), interest payments, and Social Security, as approximately 80 percent of annual spending is dedicated to these four pillars of the budget.

Interest is quickly absorbing a hefty portion of tax receipts. According to Treasury data, 48 percent of current fiscal year-to-date income tax collections have been dedicated to covering interest payments.

ING economists agree that government borrowing and debts are “barely getting a mention” this election cycle, which may not be a good sign that Washington will change the fiscal trajectory anytime soon. This “risks further debt downgrades, more market volatility and higher borrowing costs,” they said.

“In the current environment, where markets are calm, politicians see little threat from the current trajectory of the US’s fiscal position,” they said in a research note earlier this month. “But that will quickly change if ratings agencies and markets start to see it as an issue.”

Last year, the U.S. government received two credit downgrades.

The national debt clock at a bus station in Washington, on Aug. 6, 2024. Madalina Vasiliu/The Epoch Times

Fitch Ratings cut Washington’s credit outlook in August, reflecting “the expected fiscal deterioration over the next three years, a high and growing general government debt burden.”

Moody’s lowered America’s credit rating outlook from “stable” to “negative” in November. While the agency did not downgrade the federal government’s highest investment-grade notch, Moody’s analysts said in a recent report that its top rating is in doubt if the next administration does not grapple with widening budget deficits.

“The administration’s tax and spending policies will affect the size of future budget deficits and the expected decline in US fiscal strength, which could have a significant effect on the US sovereign credit profile,” analysts stated in the report. “These debt dynamics would be increasingly unsustainable and inconsistent with an Aaa rating if no policy actions are taken to course correct.”

What Voters Say

So why are the presidential heavyweight contenders refraining from discussing the debt?

Atul Bhatia, an economist at RBC Wealth Management, said that touching these programs “is political death.”

As a result, Bhatia noted in June, the debt will continue to grow in the coming years “without shared sacrifice” by the electorate. Ultimately, according to the RBC economist, “it’s unrealistic to expect politicians to meaningfully raise taxes or cut popular programs without some sort of external impetus.”

Surveys suggest that voters are worried about the debt.

Ninety-one percent of voters want the candidates to outline plans to address the ballooning national debt and rising deficits, according to a recent survey by the Peter G. Peterson Foundation.

Similar percentages of voters agreed that Trump and Harris must ensure their policies do not add to the debt and explain how they would prevent a 21 percent automatic reduction in Social Security benefits.

Appearing in June before the House Subcommittee on Social Security, part of the Committee on Ways and Means, Congressional Budget Office Director Phillip Swagel forecast that Social Security benefits would be cut by 21 percent in 2035 without changes to the retirement program.

A poll earlier this year by Main Street Economics, an organization dedicated to educating the public about economics, found that 91 percent of voters are worried that a failure to address the national debt will have long-term effects on their financial lives.

“Americans are very worried about their own financial security, putting it on par with personal safety and armed conflicts,” former U.S. comptroller general and Main Street Economics advisory board member David Walker said in a statement accompanying the polling data. “Voters want our country’s elected leaders to put our nation’s finances in order now and in a sustainable manner.”

But do not expect anything different to happen after the election is finished, notes Tannenbaum.

“Setting a course for improved fiscal health will be challenging,” Tannenbaum said, adding that national debt concerns will not be diminished no matter the election outcome in November.

A Global Debt Bomb

It is not only the United States that faces mountainous debt levels.

In 2023, global debt levels hit a record $313 trillion, according to the Institute of International Finance.

However, America’s deteriorating fiscal conditions present a “growing risk” to the U.S. and global economies, the International Monetary Fund (IMF) stated in June.

“These chronic fiscal deficits represent a significant and persistent policy misalignment that needs to be urgently addressed,” the group said.

IMF officials recommended raising indirect taxes, increasing income taxes for those earning less than $400,000 per year, eliminating various tax expenditures, and reforming entitlement programs.