The Making of the President 2016: Part 27 The Issues-Debt and Deficit
Thus far in our series on the candidates' positions on the issues, one thing that has struck me is how each campaign's position statements say very little on how their proposed programs will be paid for, how they will affect the national debt and the annual deficit, or what in fact the campaigns think about the problem of national debt. Here is what I found on their campaign websites on the issue of debt and deficit.
The Trump Campaign
The Trump Campaign website does not have any specific section on the issue of the national debt or on the subject of deficit spending. He has been very critical of how the deficit has increased so dramatically under President Barack Obama and has warned his audiences that electing Hillary Clinton will mean more of the same. But under Trump's economic plan, he views high taxes as the problem and focuses more on lowering taxes than on any specific plan to attack the deficit.
A number of media sources have been very critical of Trump's economic plan. Recently the Congressional Budget Office warned that revenues this year are lower than had been budgeted for and that the deficit will almost certainly be higher than the $544 billion previously projected. Currently the national debt is over $19.15 trillion and has been predicted to reach $29 trillion by 2026. Trump has addressed the problem in a speech saying, “I would borrow, knowing that if the economy crashed, you could make a deal” to pay bondholders less than full value on the debt owed to them. This is similar to what Greece has repeatedly negotiated with its bondholders over the past few years.
Trump's critics argue that even the hint of a default would inject an almost unprecedented level of uncertainty into international markets, causing interest rates to spike for all kinds of debt, from corporate debt to state- and local-government debt. In turn, financial institutions would be unwilling to make loans, which would lead to a huge drop in business investment and consumer spending.
In 2014 Argentina defaulted on some of its debt and their economy was thrown into recession, as inflation spiked to as much as 41 percent and consumption fell by 4.5 percent. The country was shut out of international markets and it will be years before Argentinians recover.
Critics also argue that roughly 55 percent of government debt is owned by Americans, mostly through their 401(k) or company pension funds, so if Trump reduced the value of those bonds, it would be disastrous for many retirement plans. Investors would be reluctant to take a risk on future U.S. bonds and interest rates would need to be higher to offset the increased risk. Every percentage-point increase in interest rates costs the federal government $120 billion in additional interest payments. Thus, critics say, in attempting to lower the debt, Trump’s plan could actually end up increasing it.
Trump's critics also argue that Trump's plan is unconstitutional. The Constitution contains a provision that says: “The validity of the public debt of the United States, authorized by law, . . . shall not be questioned.”
Trump has also said: “You never have to default because you print the money.” But as economists note, this would lead to massive inflation, which would mean that the savings and investments of millions of Americans would be wiped out and the cost of living would skyrocket, with low- and middle-income Americans being most hurt. Those on fixed incomes, like senior citizens, would be among the biggest losers and businesses would be forced to offset rising costs by slashing payrolls, throwing millions of Americans out of work. The cost of imports would rise dramatically, which would be a disaster for consumers.
The Committee for a Responsible Federal Budget estimates that Trump’s plans would add as much as $15.45 trillion to the national debt over ten years, including interest costs.
The Clinton Campaign
The sad thing is that the Clinton campaign does not seem concerned about debt or deficit reduction either. Their website has no specific proposal to address this issue and many of the campaign website's proposals are for programs that would add to the national debt. The Committee for a Responsible Federal Budget (CRFB) estimated that under Trump's plans, debt held by the public would rise from $14 trillion now to a little more than $35 trillion over the next decade. But under Clinton's plans, the national debt would also rise substantially. Under her plans, according to the same CRFB analysis, debt held by the public would rise from $14 trillion to $23.9 trillion over the next decade. Gross national debt would rise from $19 trillion to more than $29 trillion.
The CRFB report shows that Clinton's increases would track very closely with debt increases that are already expected under current government spending patterns, increasing it only slightly over today's trajectory. While that's better than what is predicted under Trump's plan, both candidates fail to appreciate that the nation's debt trajectory is, in its current state, unsustainable in the long term.
The difference in the two campaigns appears to be that Trump, unlike Clinton, sees reduced taxes as part of the solution, though this opinion is not supported by the vast majority of economists.
Debt and deficit spending are two issues that fail to gain any appreciably notice in the 2016 campaign. It's unclear why concern for this issue is not greater during this election cycle. This may be one of the unfortunate consequences of the Citizens United decision: those who have the money to control the message most discussed in campaign advertising are not talking about the issue of rising debt and deficits.
The Trump Campaign
The Trump Campaign website does not have any specific section on the issue of the national debt or on the subject of deficit spending. He has been very critical of how the deficit has increased so dramatically under President Barack Obama and has warned his audiences that electing Hillary Clinton will mean more of the same. But under Trump's economic plan, he views high taxes as the problem and focuses more on lowering taxes than on any specific plan to attack the deficit.
A number of media sources have been very critical of Trump's economic plan. Recently the Congressional Budget Office warned that revenues this year are lower than had been budgeted for and that the deficit will almost certainly be higher than the $544 billion previously projected. Currently the national debt is over $19.15 trillion and has been predicted to reach $29 trillion by 2026. Trump has addressed the problem in a speech saying, “I would borrow, knowing that if the economy crashed, you could make a deal” to pay bondholders less than full value on the debt owed to them. This is similar to what Greece has repeatedly negotiated with its bondholders over the past few years.
Trump's critics argue that even the hint of a default would inject an almost unprecedented level of uncertainty into international markets, causing interest rates to spike for all kinds of debt, from corporate debt to state- and local-government debt. In turn, financial institutions would be unwilling to make loans, which would lead to a huge drop in business investment and consumer spending.
In 2014 Argentina defaulted on some of its debt and their economy was thrown into recession, as inflation spiked to as much as 41 percent and consumption fell by 4.5 percent. The country was shut out of international markets and it will be years before Argentinians recover.
Critics also argue that roughly 55 percent of government debt is owned by Americans, mostly through their 401(k) or company pension funds, so if Trump reduced the value of those bonds, it would be disastrous for many retirement plans. Investors would be reluctant to take a risk on future U.S. bonds and interest rates would need to be higher to offset the increased risk. Every percentage-point increase in interest rates costs the federal government $120 billion in additional interest payments. Thus, critics say, in attempting to lower the debt, Trump’s plan could actually end up increasing it.
Trump's critics also argue that Trump's plan is unconstitutional. The Constitution contains a provision that says: “The validity of the public debt of the United States, authorized by law, . . . shall not be questioned.”
Trump has also said: “You never have to default because you print the money.” But as economists note, this would lead to massive inflation, which would mean that the savings and investments of millions of Americans would be wiped out and the cost of living would skyrocket, with low- and middle-income Americans being most hurt. Those on fixed incomes, like senior citizens, would be among the biggest losers and businesses would be forced to offset rising costs by slashing payrolls, throwing millions of Americans out of work. The cost of imports would rise dramatically, which would be a disaster for consumers.
The Committee for a Responsible Federal Budget estimates that Trump’s plans would add as much as $15.45 trillion to the national debt over ten years, including interest costs.
The Clinton Campaign
The sad thing is that the Clinton campaign does not seem concerned about debt or deficit reduction either. Their website has no specific proposal to address this issue and many of the campaign website's proposals are for programs that would add to the national debt. The Committee for a Responsible Federal Budget (CRFB) estimated that under Trump's plans, debt held by the public would rise from $14 trillion now to a little more than $35 trillion over the next decade. But under Clinton's plans, the national debt would also rise substantially. Under her plans, according to the same CRFB analysis, debt held by the public would rise from $14 trillion to $23.9 trillion over the next decade. Gross national debt would rise from $19 trillion to more than $29 trillion.
The CRFB report shows that Clinton's increases would track very closely with debt increases that are already expected under current government spending patterns, increasing it only slightly over today's trajectory. While that's better than what is predicted under Trump's plan, both candidates fail to appreciate that the nation's debt trajectory is, in its current state, unsustainable in the long term.
The difference in the two campaigns appears to be that Trump, unlike Clinton, sees reduced taxes as part of the solution, though this opinion is not supported by the vast majority of economists.
Debt and deficit spending are two issues that fail to gain any appreciably notice in the 2016 campaign. It's unclear why concern for this issue is not greater during this election cycle. This may be one of the unfortunate consequences of the Citizens United decision: those who have the money to control the message most discussed in campaign advertising are not talking about the issue of rising debt and deficits.