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October 27, 2024 - 6:00pm
During Donald Trump’s recent shift at McDonalds, a $35-trillion burger was not on the menu, but that is precisely what the United States will be feasting on regardless of who becomes president in January.
Long on an upward trajectory, federal debt has exploded since the Covid-19 pandemic, from about $23 trillion at the end of 2019 to around $35 trillion today. Turning to the debt as a percentage of the national economy reveals how the shocks of the 2008 financial crisis and the pandemic have caused a fiscal spiral. Since 2007, the federal debt has soared from 34% to 95% of GDP.
These debt pressures represent not just heartburn around the corner but real fiscal challenges today. For example, the interest rate hikes rolled out to tame inflation have made interest payments on the debt explode. According to the Office of Management and Budget, interest payments on the debt have jumped from 1.5% of GDP in 2021 to an estimated 3.1% of GDP in 2024. The OMB projects that the United States will soon spend more on servicing the national debt than on defence. Interest payments risk crowding out other spending priorities, with potentially major implications for domestic and international policy.
Throughout his presidency, Joe Biden has managed the tensions of his coalition through a series of trillion-dollar annual deficits, and his administration projects sky-high deficits for as far as the budgetary eye can see. However, the 2025 expiration of many of the individual tax cuts from Trump’s Tax Cuts and Jobs Act means that Biden’s successor — whether Trump or Kamala Harris — will immediately be dealing with a ticking fiscal time bomb. If those tax cuts are allowed to lapse, many families could see their taxes jump, but extending them could put further pressures on federal coffers. The debate over the renewal of the Tax Cuts and Jobs Act could lead to a bigger showdown about the budget itself.
Coping with the national debt could expose fractures in both coalitions. As part of the party’s play for upper-income voters, Democrats have pledged to wall off an increasing portion of the population from any tax increase. Harris has promised that voters making under $400,000 annually would not see any net tax increases under her presidency. Yet she has also rolled out a number of expanded social programmes and subsidies. Trying to do both means either increasingly onerous taxes on upper-income earners or adding even more to federal deficits. Certain policies proposed by progressives to fund this new spending, such as a tax on unrealised capital gains, could prove very disruptive.
The Tax Cuts and Jobs Act was one of the signature policies of Trump’s administration, and he has made tax cuts the centrepiece of his 2024 campaign, too. He has run on exempting tips as well as Social Security benefits from federal taxes, and he is considering exempting police, firefighters, and active-duty military from federal taxes. In a decisive break with the GOP of Paul Ryan’s day, Trump has dismissed concerns about the deficit and the looming exhaustion of the trust funds for federal entitlements. That rejection of austerity politics has been crucial for redefining the GOP as a working-class party.
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SubscribeBring on Trump. As I understand it, he wants to introduce tariffs and reduce tax to stimulate growth. This would be helped in no small measure by deregulation which strangles businesses and growth currently. Cutting back on government departments and size of departments would also be on the cards. Bring on Musk. Afuera!
The author states that Trump has no plan. Out of curiosity, is he aware that Congress holds the purse-strings of the Republic, and that the president has little say?
Congress has no plan either. and the president has veto power. The president makes recommendations to congress, he can refuse to sign the budget and veto it if he disagrees. So the president has alot of say in the process.
It is a huge debt which probably neccessitates on going money printing to devalue the repaymentd ( on real terms). It is possible the covid “crises” was largely fabricated/exagerated to allow money printing to this end. The “green new deal” aldo pumps money in to the system.
Basically government debt is toxic and noone wants it. Gold/stocks/real estate/bitcoin are in demand.
All this points to an era of government shinking thatnis badly needed but accompanied by a shrill, hysterical media class indoctrinated in leftist ideas.
Ignore the hysteria, buy some assets and better to work in private sector for foreseeable future
If I’ve learned anything from watching the first two-thirds of the MC Hammer Behind The Music, it’s that the money never runs out.
Perhaps MC Hammer could be appointed Treasury Secretary.
Welcome to the United States of debt and deficits. The public notices little day to day pain with our high debt, and probably will not until its too late (like the frog in the pot of water set to boil). Solving this problem will require cuts in things people like or rely on, such as social security, Medicare and Medicaid, as well as tax increases. Watch out for lower standards of living. Its great to say that the national debt is a problem, however, when asked what individual sacrifice you will make, people go silent (its often they want some other person’s taxes that will be raised or funding cut).
Look at how the US society functions, with high levels of student debt (which the Biden Admin was to “forgive”), auto loan debt and credit card debt. Perhaps we are used to instant gratification and the idea of thrift, such as saving up for what you want (rather than enjoying something now and paying for it later) is sadly gone from many people.
Assuming no other major wars or catastrophes, watch out for the mid 2030s when the US Social Security Trust Fund will no longer be able to pay benefits at the formula amount.
400+ federal agencies with hundreds of thousands of well paid bureaucrats would be a starting point.
David Sacks (one of Trump’s Silicon Valley supporters) has said on the all-in podcast that it would be not so much a question of raising taxes but to reduce spending and to inrease income by boosting the economy. To me, that sounds like a reasonable plan.