Nobody dares admit that America is heading for a debt disaster

The US needs another Ronald Reagan, not yet more spending financed through borrowing or tax rises

The 2024 fiscal year just ended in Washington and federal spending reached a record of more than $6.8 trillion. That’s nearly twice as much as Washington spent just 10 years earlier, a staggering expansion in the burden of government.
Some fiscal restraint is desperately needed, but that will not happen anytime soon. Both major presidential candidates are proposing to spend more money according to a new report from the Committee for a Responsible Federal Budget (CRFB).
The CRFB estimates that Donald Trump wants about $1 trillion more spending over the next 10 years and that Kamala Harris wants about $4 trillion of additional spending.
Keep in mind that all of this new spending is in addition to the spending increases that already are part of the “baseline”. To be more specific, the Congressional Budget Office estimates that the burden of federal spending will climb to more than $10.3 trillion by 2034 if government is left on autopilot.
These huge, built-in, spending increases are projected to happen mostly because entitlement programmes such as Social Security and Medicare automatically increase as more baby boomers enter retirement.
Responsible politicians would be proposing to reform entitlements as part of an agenda of spending restraint. But responsible is not a word to describe either Trump or Harris. During his four years in office, Trump increased spending faster than Barack Obama. He was even more profligate when looking just at domestic spending. And that’s not even counting the orgy of pandemic-related spending in his final year in office.
And Harris may be even worse. Since vice presidents have no power, perhaps she can’t be blamed for Joe Biden’s spending increases. However, as a member of the Senate, she received failing grades most years from the National Taxpayers Union. And when she ran for president in 2020, she proposed bigger spending increases than Bernie Sanders, who is a self-professed socialist.
All of these spending increases (by both candidates) would be bad news for the American economy, regardless of whether they are financed by higher taxes, more borrowing, or money printing.
While Trump and Harris are both big spenders, they are not the same when looking at tax policy.
Trump is proposing some big tax cuts, such as extending the 2017 tax law, as well as some gimmicky ideas such as no taxes on tips, no taxes on Social Security benefits, and no taxes on overtime compensation. He partially offsets those tax cuts with a massive increase in taxes on trade, but the net effect would be a lot less revenue for Washington over the next 10 years.
Harris, by contrast, wants to extend most of the 2017 tax law, but she offsets that foregone revenue with several different “soak-the-rich” tax increases, including a higher corporate income tax, a higher tax rate on capital gains, higher investment taxes, and a bizarre plan to impose taxes on capital gains that only exist on paper.
For those who focus on red ink, both plans will produce more debt, albeit in different ways. Trump is proposing more spending and a big tax cut while Harris is proposing a massive amount of new spending along with a tax increase. The net results, according to CRFB, is that Trump’s plan would increase 10-year deficits by $7.5 trillion while the Harris plan would boost deficits by $3.5 trillion over the same period.
However, there are two reasons why these numbers probably understate the severity of the problem. First, politicians usually underestimate the cost of new programmes. For instance, it’s highly likely that Trump’s border wall and deportation plan would cost much more than $350 billion over 10 years. And the Harris proposal for subsidised child care would cost more than $700 billion over the same period.
Second, tax increases generally don’t raise as much revenue as politicians expect. For example, Trump may think his protectionist tariff will raise $2.7 trillion by 2034, but that is highly unlikely given the probable damage to the global economy. Similarly, the class-warfare taxes proposed by Harris would have a very negative effect on incentives for productive behavior, so actual revenues would be far less than the $4 trillion-plus she hopes to extract from the productive sector of the economy.
The bottom line is that the United States needs another Ronald Reagan. Or, to be bipartisan, another Bill Clinton. Both of those presidents did a decent job of limiting spending growth. As such the burden of spending fell relative to the size of the private economy. Unsurprisingly, the 1980s and 1990s were years of strong growth.
With Trump and Harris promoting Greek-style fiscal policy, it’s more likely that America will suffer a fiscal crisis rather than enjoy strong growth.
Daniel J Mitchell is president of the Center for Freedom and Prosperity