Let's Have a Real Debate
Cross-posted on the Fix the Debt blog
The first two presidential debates offered a lot of drama but little substance. So the final debate tonight is the last chance for voters to hear the presidential candidates debate the issues that will shape our economic future, among them slow economic growth, the increasing cost of entitlement programs, and our national debt, which is at a level not seen since the end of World War II and growing faster than the economy.
Moderator Chris Wallace of Fox News has announced that “debt and entitlements” will be one of the topics, and so will the economy. How will the candidates respond?
Here’s a look at what they may say, based on their previous statements and claims, and what we’d like to hear them say.
The national debt is already high by historical standards and is on an unsustainable course. High and rising debt will slow the economy and make the country more vulnerable in the next crisis.
We may hear: Things are getting better because the deficit has come down from the highs of recent years.
Low interest rates mean the problem is not a big deal.
We can grow our way out of debt.
We want to hear: Acknowledgement that fixing the debt will be a priority and will require significant spending and tax changes.
The deficit had declined in recent years, but the era of declining deficits is now over. The deficit rose in fiscal year 2016 by nearly 35 percent from the previous year and deficits will trend upwards going forward, with trillion-dollar deficits projected to return by 2024.
Meanwhile, the national debt is nearly 77 percent of GDP – higher than at any point since just after World War II and nearly twice the average of the last 50 years. According to the Congressional Budget Office, it will continue growing indefinitely, exceeding the size of the entire economy by 2033 and the all-time record of 106 percent of GDP by 2035. By 2046, debt will be 141 percent of GDP and still climbing.
Interest on the debt is the fastest growing part of the federal budget and will balloon as interest rates inevitably rise from their current low levels. That will crowd out critical investments in areas like infrastructure, education, and research that could help grow the economy. The Congressional Budget Office warns that high and rising debt will slow economic growth and wages. They also project that reducing the debt will increase incomes. High debt also means that it will be harder for the country to recover from the next recession.
While faster economic growth can be part of the solution, faster growth causes both increased revenue and increased spending. Growth alone will not be able to solve our debt problem.
We may hear: Vague claims from the candidates that they will address the problem.
We want to hear: Specific ideas to fix the debt.
Both candidates have acknowledged that the national debt is a problem, but neither of them has proposed to reduce it by even a penny. In fact, the debt would grow faster than the economy under both of them.
Our analysis of the candidates' campaign proposals found that Hillary Clinton's plans would increase the debt by $200 billion over current projections in the next ten years. Donald Trump's plans would increase the debt by $5.3 trillion over the same period. Debt would rise to 86 percent of GDP under Clinton and to 105 percent under Trump in a decade.
When you’re in a deep hole, the first thing to do is stop digging. Both candidates should say what they would do in their first budget as president to start putting the debt on a downward path.
Social Security has been paying out more in benefits than it has been taking in through revenue since 2010. As our population ages, that shortfall will increase because fewer people will be working and paying into the system to support the growing number of retiring Americans. The Social Security trustees project that the program’s combined trusts funds will be exhausted by 2034. When that happens, all beneficiaries will face an across-the-board cut in their benefits of 21 percent.
Federal spending on health care – namely Medicare and Medicaid – will be the main contributor to the debt as our population ages. And the Medicare Hospital Insurance trust fund is due to become exhausted by 2028.
We may hear: Social Security should be broadly expanded now.
We want to hear: Putting a priority on long-term Social Security solvency first before any benefit increase.
A typical newly-retired couple in 2033 would see a $10,300 immediate cut in annual Social Security benefits the following year due to the insolvency of the trust funds. Expanding benefits by just $100 per beneficiary a month would cost $1.2 trillion over ten years, exacerbating the solvency problem and squeezing out other priorities. The focus should be on making the program solvent first. See how old you will be when the trust funds run out and how it will affect your benefits.
The best way to strengthen Social Security is to ensure its long-term solvency. In fact, 85 percent of recipients would have higher benefits under an approach that achieves solvency over the long run versus current law.
We may hear: We don’t need to mess with Social Security right now.
We want to hear: Recognition of the need for a long-term solution that includes a mix of increasing revenue and slowing the growth of benefits while protecting the most vulnerable.
Social Security’s solvency challenge is real. The trust fund insolvency date of 2034 predicted by the Social Security trustees is not that far off. It is when today’s 49-year-olds reach the normal retirement age. And the Congressional Budget Office estimates it will happen even sooner, in 2029. In addition, the cost of waiting to act is high. The longer we wait, the more abrupt the changes will be and the less time people will have to prepare. Try your own reform ideas with our “Reformer” tool.
We may hear: The health care cost issue has been solved.
Repealing the Affordable Care Act will fix the debt.
Negotiating Medicare drug prices will substantially reduce the deficit.
We want to hear: Concrete ideas to turn the health care cost curve downward.
While the growth in health care costs has slowed in recent years, the cause isn’t clear and this change may in fact be temporary. This problem is far from solved.
While it is a stretch to say that the Affordable Care Act has solved the problem, it’s also wrong to claim that repealing it will fix the debt. In fact, full repeal would likely add to the debt because Medicare cuts and tax increases would also be rescinded.
Negotiating Medicare drug prices has also been put forth as a way to achieve considerable savings. But the savings would likely be negligible.
Growing the economy should be a national priority. But using it as an excuse to add to the already unsustainable national debt continues the same thinking that got us in trouble in the first place.
We may hear: Unrealistic economic growth estimates.
We want to hear: Realistic, achievable assumptions and plans for growing the economy.
Candidates in this election have promised annual economic growth of 4, 5, and even 6 percent. But history suggests that these claims are unrealistic. The Congressional Budget Office projects that growth will average 2 percent annually over the next decade. And it has averaged just over 3 percent since 1947. In fact, there has never been a ten-year period of 5 percent growth in the post-war era.
Economic growth will play a role in addressing our fiscal problems, but making unrealistic promises about what we can achieve will only make things worse.
We may hear: Borrowing for tax cuts or for investments like infrastructure will boost the economy and help reduce the debt.
We want to hear: A plan that combines a sustainable growth policy with long-term deficit reduction.
Our current low interest rates have encouraged some to propose spending more now and adding the cost to the debt in order to boost the economy.
But the data shows this won’t work. The Congressional Budget Office crunched the numbers and found that fully-funded investment will boost the economy while deficit-financed investment will shrink the economy in the long run. Likewise, the Joint Committee on Taxation found that revenue-positive comprehensive tax reform would grow the economy more than revenue-neutral reform.
Reducing the deficit responsibly can grow the economy. Candidates should discuss how they will pair a deficit reduction plan with a balanced strategy for the economy.
On Wednesday evening, the candidates have their last chance to convince the voters that their fiscal and economic plans are right for our nation. We hope you’ll be watching to see how they do.