Debt on Debt on Debt

Image courtesy of Vox

By Chris Carey

Stereotypes abound with how Democrats and Republicans handle the national debt. Republicans, typically thought of as small-government proponents, contrast with the Democrats, who favor more social welfare and government intervention. Interestingly, the only president to have operated under a balanced budget, in which government spending was less than government revenue, was Democrat Bill Clinton 20 years ago. 

Now, at the beginning of President Joe Biden’s administration, many worry for the future of the national debt, which currently exceeds $27 trillion. Why does the debt matter? What did President Trump do to reduce the national debt? How will President Biden’s initiatives affect the debt level? Read on to find out!

The national debt grows when the government spends more than it has on hand. This is a problem that dates back to the late 1700s, following the American War for Independence. The first Secretary of the Treasury, Alexander Hamilton, understood the need for funds to operate and expand national interests. Rather than paying off the national debt, he chose to leverage and expand it so that American credit would be respected globally. This allowed for funding of projects beyond the basic tax revenue the country could raise.

In this respect, competitive national credit, boosted by government debt, allows the US government to borrow money and undertake projects; similarly, good personal credit allows an individual to buy a house or a car. 

Unfortunately, a national debt at such an exorbitant rate has negative effects on the national economy and long term social welfare. At the end of Fiscal Year (FY) 2020, the United States was paying approximately $1 billion each day in interest alone on the national debt. According to some projections, this means that more interest payments will be made than investments in key sectors like infrastructure, research and development, and education across the next ten years. Other projections show how reducing national debt can increase wages.

Unprecedented costs due to the COVID-19 pandemic have contributed immensely to the expansion of the national debt, leading to a record high $3.1 trillion deficit in FY 2020. Additionally, President Trump, who promised to reduce the national debt, oversaw the third largest increase of the debt relative to the national economy in US history. Under his watch, the debt grew by nearly $7.8 trillion. This is due in part to the tax cuts the administration introduced, as well as the above-mentioned pandemic spending.

President Biden’s big ticket plans for the next four years include massive environmental overhauls and increased coronavirus stimulus packages. His proposed plan for COVID relief clocks in at about $1.9 trillion, more than half of the entire deficit for FY 2020. Additionally, the four-year environmental plan laid out by Massachusetts natives Gina McCarthy, White House National Climate Advisor, and John Kerry, Special Presidential Envoy for Climate, has a $2 trillion price tag attached.

Unlike the Trump administration spending increases, the Biden administration will mitigate some costs with increased taxes across corporate and upper class brackets. Additionally, there are expected economic returns on the environmental plan which focuses largely on infrastructure and sustainable business solutions.

Regardless of any silver linings, increased government spending has skyrocketed the deficit, and by extension, the national debt in recent years. Projections of current and unfolding policies seem to display the same sort of exponential growth, albeit with more guided plans on accounting for the increased expenditures through development and taxation.