Post by Robert CanalesAn Illinois village has been plunged into millions of dollars of debt by
its mayor's outrageous credit card spending, an investigation has
revealed.
He's a republican. All republicans are careless spenders. They don't
even pay lip service to debt reduction now.
A Closer Look
Donald Trump Built a National Debt So Big (Even Before the Pandemic) That
Itll Weigh Down the Economy for Years
The King of Debt promised to reduce the national debt then his tax cuts
made it surge. Add in the pandemic, and he oversaw the third-biggest
deficit increase of any president.
by Allan Sloan, ProPublica, and Cezary Podkul for ProPublica Jan. 14, 2021,
5 a.m. EST
President Donald Trump promised to reduce the national debt but instead
increased it. It is now at its highest level relative to the U.S. economy
since the end of World War II. (Brendan Smialowski/AFP via Getty Images)
Series: A Closer Look
Examining the News
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This story was co-published with The Washington Post.
One of President Donald Trumps lesser known but profoundly damaging
legacies will be the explosive rise in the national debt that occurred on
his watch. The financial burden that hes inflicted on our government will
wreak havoc for decades, saddling our kids and grandkids with debt.
The national debt has risen by almost $7.8 trillion during Trumps time in
office. Thats nearly twice as much as what Americans owe on student loans,
car loans, credit cards and every other type of debt other than mortgages,
combined, according to data from the Federal Reserve Bank of New York. It
amounts to about $23,500 in new federal debt for every person in the
country.
The growth in the annual deficit under Trump ranks as the third-biggest
increase, relative to the size of the economy, of any U.S. presidential
administration, according to a calculation by a leading Washington budget
maven, Eugene Steuerle, co-founder of the Urban-Brookings Tax Policy
Center. And unlike George W. Bush and Abraham Lincoln, who oversaw the
larger relative increases in deficits, Trump did not launch two foreign
conflicts or have to pay for a civil war.
The National Debt Increased Under Trump Despite His Promise to Reduce It
Daily total national debt from 2009 to present.
Source: U.S. Treasury (Lena V. Groeger/ProPublica)
Economists agree that we needed massive deficit spending during the COVID-
19 crisis to ward off an economic cataclysm, but federal finances under
Trump had become dire even before the pandemic. That happened even though
the economy was booming and unemployment was at historically low levels. By
the Trump administrations own description, the pre-pandemic national debt
level was already a crisis and a grave threat.
The combination of Trumps 2017 tax cut and the lack of any serious
spending restraint helped both the deficit and the debt soar. So when the
once-in-a-lifetime viral disaster slammed our country and we threw more
than $3 trillion into COVID-19-related stimulus, there was no longer any
margin for error.
Our national debt has reached immense levels relative to our economy,
nearly as high as it was at the end of World War II. But unlike 75 years
ago, the massive financial overhang from Medicare and Social Security will
make it dramatically more difficult to dig ourselves out of the debt ditch.
The Debt to GDP Ratio Is the Highest It's Been Since World War II
Federal debt held by the public as a percentage of gross domestic product
since 1900.
Source: Congressional Budget Office (Lena V. Groeger/ProPublica)
Falling deeper into the red is the opposite of what Trump, the self-styled
King of Debt, said would happen if he became president. In a March 31,
2016, interview with Bob Woodward and Robert Costa of The Washington Post,
Trump said he could pay down the national debt, then about $19 trillion,
over a period of eight years by renegotiating trade deals and spurring
economic growth.
After he took office, Trump predicted that economic growth created by the
2017 tax cut, combined with the proceeds from the tariffs he imposed on a
wide range of goods from numerous countries, would help eliminate the
budget deficit and let the U.S. begin to pay down its debt. On July 27,
2018, he told Sean Hannity of Fox News: We have $21 trillion in debt. When
this [the 2017 tax cut] really kicks in, well start paying off that debt
like its water.
Nine days later, he tweeted, Because of Tariffs we will be able to start
paying down large amounts of the $21 trillion in debt that has been
accumulated, much by the Obama Administration.
Thats not how it played out. When Trump took office in January 2017, the
nonpartisan Congressional Budget Office was projecting that federal budget
deficits would be 2% to 3% of our gross domestic product during Trumps
term. Instead, the deficit reached nearly 4% of gross domestic product in
2018 and 4.6% in 2019.
There were multiple culprits. Trumps tax cuts, especially the sharp
reduction in the corporate tax rate to 21% from 35%, took a big bite out of
federal revenue. The CBO estimated in 2018 that the tax cut would increase
deficits by about $1.9 trillion over 11 years.
Meanwhile, Trumps claim that increased revenue from the tariffs would help
eliminate (or at least reduce) our national debt hasnt panned out. In
2018, Trumps administration began hiking tariffs on aluminum, steel and
many other products, launching what became a global trade war with China,
the European Union and other countries.
The tariffs did bring in additional revenue. In fiscal 2019, they netted
about $71 billion, up about $36 billion from President Barack Obamas last
year in office. But although $36 billion is a lot of money, its less than
1/750th of the national debt. That $36 billion could have covered a bit
more than three weeks of interest on the national debt that is, had Trump
not unilaterally decided to send a chunk of the tariff revenue to farmers
affected by his trade wars. Businesses that struggled as a result of the
tariffs also paid fewer taxes, offsetting some of the increased tariff
revenue.
By early 2019, the national debt had climbed to $22 trillion. Trumps
budget proposal for 2020 called it a grave threat to our economic and
societal prosperity and asserted that the U.S. was experiencing a
national debt crisis. However, that same budget proposal included
substantial growth in the national debt.
By the end of 2019, the debt had risen to $23.2 trillion and more federal
officials were sounding the alarm. Not since World War II has the country
seen deficits during times of low unemployment that are as large as those
that we project nor, in the past century, has it experienced large
deficits for as long as we project, Phillip Swagel, director of the CBO,
said in January 2020.
Weeks later, COVID-19 erupted and made the financial situation far worse.
As of Dec. 31, 2020, the national debt had jumped to $27.75 trillion, up
39% from $19.95 trillion when Trump was sworn in. The government ended its
2020 fiscal year with the portion of the national debt owed to investors,
the metric favored by the CBO, at around 100% of GDP. The CBO had predicted
less than a year earlier that it would take until 2030 to reach that
approximate level of debt. Including the trillions owed to various
governmental trust funds, the total debt is now about 130% of GDP.
Normally, this is where wed give you Trumps version of events. But we
couldnt get anyone to give us Trumps side. Judd Deere, a White House
spokesman, referred us to the Office of Management and Budget, which is a
branch of the White House.
OMB didnt respond to our requests. The Treasury directed us to comments
made by OMB director Russell Vought in October, in which he predicted that
as the pandemic eases and economic growth rebounds, the fiscal picture
will improve. The OMB blamed legislators for deficits when Trump submitted
his proposed 2021 budget: Unfortunately, the Congress continues to reject
any efforts to restrain spending. Instead, they have greatly contributed to
the continued ballooning of Federal debt and deficits, putting the Nations
fiscal future at risk.
Still, the deficit growth under Trump has been historic. Steuerle, of the
Tax Policy Center, has done a comparison of every American president using
a metric called the primary deficit. Its defined as the deficit minus
interest costs, because interest is the only budget expense that presidents
and Congress cant control unless they want to do the unthinkable and
default on the debt. Steuerle examined the records of 45 presidents to see
how the primary deficit had shrunk or grown relative to the size of the
economy between the first and final years of each presidents
administration.
Trump had the third-biggest primary deficit growth, 5.2% of GDP, behind
only George W. Bush (11.7%) and Abraham Lincoln (9.4%). Bush, of course,
not only passed a big tax cut, as Trump has, but also launched two wars,
which greatly inflated the defense budget. Lincoln had to pay for the Civil
War. By contrast, Trumps wars have been almost entirely of the political
variety.
Our national debt is now at its highest level relative to our economy since
the end of World War II. After the war ended, the extraordinary military
expenses disappeared, a postwar recovery began and the debt began to fall
rapidly relative to the size of the economy.
But thats not going to happen this time. When World War II ended 75 years
ago, Social Security was in its infancy and Medicare didnt exist. Today,
many of our biggest and most rapidly growing expenses, especially Social
Security and Medicare, are baked into the budget because of our nations
aging population. These outlays are slated to rise sharply. Steuerle
recently calculated that Social Security, health care and interest costs
are projected to absorb 122% of the total growth in federal revenues from
2019 to 2030.
Whats more, our investment in the future things like research and
development, education, infrastructure, workforce training and such is
declining as a proportion of the budget. OMB data shows that in 1970,
mandatory spending (such as Social Security and Medicare, but not including
interest on the debt) and investment each made up around 30% of total
federal spending. But as of 2019, the most recent available year, mandatory
spending had doubled to around 61% of total federal spending while
investment fell by more than half, to around 12.5%.
Mandatory Spending Outstrips Investment in the Future
Mandatory and investment spending as a percentage of total U.S. government
spending from 1970 to 2019. Mandatory (also known as nondiscretionary)
spending includes programs such as Social Security and Medicare, while
investment includes infrastructure, research and development, education and
training.
Source: Office of Management and Budget (Lena V. Groeger/ProPublica)
Spending more and more on past promises and shrinking the proportion of
spending for the future doesnt bode well for our kids and grandkids. Had
Trump done what he said hed do and paid off part of the national debt
before COVID-19 struck rather than adding significantly to the debt, the
situation would be considerably less dire. And had Trump done a better job
of coping with COVID-19, the economic and human costs wouldve been greatly
reduced.
In addition to forcing us to reduce the proportion of the budget spent on
the future to help pay for the past, theres a second reason that huge and
growing budget deficits matter: interest costs.
Bigger debt ultimately means bigger interest costs, even in an era when the
Federal Reserve has forced down Treasury rates to ultralow levels. The
governments interest cost (including interest paid to government trust
funds) was around $523 billion in the 2020 fiscal year. That outstrips all
spending on education, employment training, research and social services,
Treasury data shows.
Interest costs are way below where theyd be if the Fed hadnt forced rates
down to try to stimulate the economy and mitigate the impact of the
pandemic. One-year Treasury securities cost taxpayers a minuscule 0.10% in
interest at year-end, down from 1.59% at the end of 2019. The 10-year
Treasury rate was 0.93%, down from 1.92%.
In late December, the Fed reported boosting its Treasury holdings by more
than $2 trillion from a year earlier. The increase is primarily in longer-
term securities. That has kept the federal government from having to raise
trillions of dollars in the capital markets, and therefore has kept longer-
term interest rates way below where they would otherwise be.
But unless something changes, even the Feds promise to keep interest rates
near current levels for several years wont fend off future problems. Most
of the governments borrowing to fund pandemic relief has been shorter-term
borrowing that will have to be refinanced in the coming years. If rates
rise, so will the governments interest expense.
Even with rates where they are, interest on the debt is already going to be
the fastest-growing budget category this decade, according to the Peter G.
Peterson Foundation, which tracks the issue. Annual net interest costs are
projected to double in 10 years and grow so large beyond 2030 that interest
will become a driving factor in annual deficit growth, according to
Peterson estimates.
Listen to what CBO Director Swagel had to say on the subject in a report to
congressional Republicans in December: Although the current low interest
rates indicate that the debt is manageable for now and that the United
States is not facing an immediate fiscal crisis, in which interest rates
abruptly escalated or other disruptions occurred, the risk and potential
budgetary consequences of such a crisis become greater over time.
Read More
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To deter violence, research suggests the best strategy is not harsh
punishment for threats but a different tactic, one based on decades of
interviews with mass shooters, political assassins and people who survived
attacks: threat assessments.
Trump was asked about this risk during a virtual discussion with the
Economic Club of New York last October. If we have another stimulus bill
out of Congress, are you worried that the entire amount of federal debt
will be too large for us to pay off in a sensible way? asked David
Rubenstein, a private equity executive.
Trump answered by falsely claiming that the U.S. was starting to pay off
the national debt before the pandemic, and he claimed that future economic
growth would let it do so. I think youre going to see tremendous growth,
David, and the growth is going to get it done, Trump said.
Two months later, when Congress finally approved $900 billion of economic
stimulus that is being financed with debt, Trump challenged Congress to
spend and borrow even more. Then he went golfing.