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The national debt is on track to exceed record levels over the next few years. Inflation is at its highest for 40 years. We need to put in place a balanced, bipartisan debt reduction plan to slow inflation, reduce debt and promote long-term economic growth – about $7 trillion in savings would be enough to keep debt from spiraling out of control.
But given that the two sides are at each other’s throats and can barely agree on anything, let alone something as difficult as finding trillions of dollars in cuts spending and tax increases, it seems unlikely to happen any time soon.
So how about we start with small steps: what if members of Congress and the President agree not to borrow new ones for the rest of 2022. That’s only 45 days.
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The national debt has exploded in recent years, from around 80% of the economy in 2019 to 97% today. Under current law, we estimate it will rise further to 116% of output – 10 percentage points above the previous record set after World War II – in just a decade. Under a more pessimistic set of economic and political assumptions – where politicians extend various expiring provisions – we find that debt could reach 138% of the economy.
Some of the recent borrowing was justified, even necessary, to support the economy during the pandemic and prevent what could have been the deepest economic downturn since the Great Depression.
But responsible COVID-19 borrowing has been sandwiched between billions of wasteful and reckless borrowing. Former President Donald Trump signed $7.5 trillion in new borrowing into law, or $4 trillion excluding COVID-19 measures. That $4 trillion was split roughly evenly between unpaid tax cuts and spending increases.
The Biden administration has continued the trend of rising debt, approving about $5 trillion in new borrowing so far, including $1.9 trillion from the US bailout, $400 billion from the bipartisan over infrastructure and the rest split between irresponsible student debt cancellation, new benefits for unpaid veterans and other spending increases. Even on COVID-19 relief, they have gone too far, spending far more than necessary, which has fueled the current high inflation. The only recent silver lining, the hard-won $240 billion deficit reduction through the Cut Inflation Act, was quickly dashed by other deficit-enhancing measures.
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All of these borrowings have consequences. It helped push inflation to its highest level in more than 40 years. This is causing interest rates and interest costs to rise to record highs. And over time, it will slow economic growth, reduce our ability to meet new challenges and emergencies, impose unnecessary costs on future generations, and exacerbate all manner of geopolitical risks.
Unfortunately, politicians seem to want to go in the opposite direction. They are now entering discussions on a year-end budget deal that could significantly increase the discretionary budget while extending, reviving or enacting a series of tax cuts and spending increases. We estimated that these changes could add $100 billion to $450 billion to the deficit next year, and $650 trillion to $3.3 trillion if spread over a decade.
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No politician who worries about debt or inflation can justify supporting this kind of new debt windfall. If they want to pay for the new policies, that’s one thing. But they need to draw the line at new borrowing to regain some credibility on the issue.
So hopefully that’s not too much to ask for that for the rest of 2022, a year where we’ve never bothered to pass a budget and a year where we’ve already added $1.9 trillion new borrowing (assuming the president’s possibly illegal student debt plan passes), we can finally put the brakes on and agree on no new borrowing for the rest of 2022.
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