The looming $28 trillion predicament is set to worsen, as Harris and Trump seemingly disregard it.
Now, as concerns about a widening budget gap and escalating debt pile up, ex-President Donald Trump and Vice President Kamala Harris exhibit minimal efforts to tackle it. Instead, their financial policy blueprints, if implemented, would only intensify the ever-growing budget deficit, as forecasted by several neutral watchdog groups.
This is a significant issue, as Americans can't afford a leader who doesn't take this matter seriously, considering the implications of home affordability and the government's ability to manage crises like Covid-19.
A budget deficit arises when a nation's spending surpasses its income primarily through tax collection. The government bridges this gap by selling securities such as Treasury bonds and notes, amassing debt. The deficit is projected to widen under the current circumstances and could deteriorate further under proposed plans by both Harris and Trump, if implemented.
Already, the US teeters on the edge of debt, with publicly held federal debt standing at around $28 trillion. This is nearly equivalent to the entire US economy's value.
Even Fed Chair Jerome Powell, typically reserved on what officials should do, has expressed concerns.
"It's probably past time for a mature debate among elected officials on bringing the federal government back to a sustainable fiscal path," Powell said in a recent "60 Minutes" interview.
During the recent Trump-Harris presidential debate, the issue of budget deficit was barely mentioned twice, with Harris criticizing Trump's proposals, which are predicted to contribute significantly more to the deficit than hers. However, neither of them addressed the need to reduce the deficit, and the debate moderators failed to broach the topic.
Regardless of who wins the election, there will be a "mandate to make things worse unless something changes," according to Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. The debt accrued by both candidates' plans could undermine "every aspect of their agendas aimed at aiding American families," she added.
This wasn't always the case
During the 2008 presidential debate leading up to the election, then-Senator Barack Obama acknowledged, "It's no doubt that we've been living beyond our means, and we're going to have to make some adjustments."
Obama was a proponent of pay-as-you-go policies, stating that for every dollar he proposed spending, he proposed an additional cut to ensure balance.
In that fiscal year, the government ended with a $450 billion deficit, albeit much less than the $1.9 trillion deficit projected for the 2024 fiscal year.
When Obama ran for a second term, Republican nominee Mitt Romney pledged, "My number one principle is there will be no tax cut that adds to the deficit." Obama and Romney frequently clashed during debates over whose plan would benefit the deficit the most.
In 2017, when Obama left office, the US deficit was $670 billion, significantly smaller than when he took office in 2009. However, this decrease mainly resulted from emerging from the Great Recession, which led to reduced government spending on social programs and less financial institution support.
During his 2016 second debate with Democratic nominee Hillary Clinton, Trump mentioned the deficit, stating, "I will bring our energy companies back, and they'll make money and pay off our national debt and budget deficits, which are tremendous."
However, after Trump assumed office in 2017, the deficit steadily expanded, and national debt levels continued to rise each year, peaking in 2020 amid a surge in government spending to manage the health crisis and boost the economy. In the 2021 fiscal year, under Trump's tenure, the US ran a $2.8 trillion deficit.
Why the deficit's size matters
Widening deficits tend to provoke country debt to those purchasing US debt, amplifying risk for lenders and prompting higher interest returns from the US government. Rising interest rates could also make home mortgages more expensive for everyday Americans.
Moreover, when the government spends more on debt interest payments, fewer resources are available for projects like infrastructure investment. In 2024, the government is projected to spend more on debt interest than on defense, Medicaid, and programs supporting children, according to Congressional Budget Office estimates.
Powell summarized it in his "60 Minutes" interview: "We're borrowing from future generations," he said, "instead, we should fund those expenses ourselves and not burden our children and grandchildren with the bills."
The escalating debt also stifles economic growth and may pose a national security risk, according to MacGuineas, as the US becomes increasingly dependent on foreign countries like China and Japan to finance our debt.
Furthermore, if the widening deficit incentivizes the Fed to print more money to help pay off debt, inflation could surge, said Kent Smetters, a budget expert at the University of Pennsylvania's Wharton School.
According to Smetters, who's in charge of the Penn Wharton Budget Model, a nonpolitical research project that predicts how various fiscal policies affect the economy, he stated, "Politicians enjoy dishing out gravy rather than serving up the spinach."
He also mentioned a game of chicken between both sides, stating, "Both parties are eager to include their preferences before compromises need to be made." For the Republicans, this compromising means pushing for more tax cuts, and for the Democrats, it's all about increasing government spending. However, the country might eventually reach a point where it can't afford to borrow even more money, forcing tough decisions regarding spending cuts and increased taxes.
Smetters pointed out that the effects of Covid and the Great Recession have made Americans less concerned about the increased national debt. "In most people's minds, borrowing money is seen as a beneficial action if it helped us overcome a crisis," he told CNN.
However, MacGuineas argued that voters aren't aware that the economy would grow at a faster pace and that social programs would be sustained for a longer period if the national debt burden were reduced.
He stated, "If there's denial of deficits at the top level, what voter is going to ask for higher taxes and reduced spending if their leaders aren't even acknowledging it as a problem?"
The current financial policy proposals of both ex-President Trump and Vice President Harris, if implemented, could intensify the growing budget deficit, further deteriorating the already substantial US debt. Businesses and individuals alike are closely monitoring the economy, as the ability of the government to manage crises, like Covid-19, depends on fiscal responsibility.
