Maya MacGuineas: Donald’s dangerous debt-deficit delusion
Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt, wrote an op-ed that appeared in the New York Daily News. It is reposted here.
Donald Trump has promised to pay off the debt in eight years. That would require $28 trillion in savings over 10 years. He has also promised to balance the budget, which would require a still-hefty $8 trillion in savings.
A big problem with these promises: His plans to date would cost — not save — $12 trillion.
Trump is right to identify dealing with the debt as a pressing national problem. But his plans so far are utterly unworkable.
Our debt is currently 75% of GDP — the highest it’s ever been at any time other than around World War II. And it is projected to grow to just under 86% of GDP by 2026, exceeding the size of our entire economy within the next 20 years. This is simply unsustainable; turning things around will require a number of real policy choices.
But in supposedly confronting this reality, Trump offers policies that are puzzling and potentially damaging at the same time.
When asked in a recent CNBC interview whether the U.S. needed to pay its debt in full or whether he could negotiate a partial repayment, he said that he would “borrow, knowing that if the economy crashed, you could make a deal.”
Making a deal with Treasury bond holders? That is defaulting by another name — and it means robbing many savers of their education and retirement funds. He later clarified that he meant we can “buy back government debt at a discount.” But Treasury buybacks would do little to change our fiscal situation, and would come nowhere near offsetting the large debt increases under Trump’s tax and spending proposals.
Trump made matters worse in a series of follow-up comments, suggesting that the U.S. can’t default “because you print the money.” Yes, governments can technically do that, but as other countries have learned the hard way, printing money to escape creditors leads to runaway inflation and much higher interest rates that make future borrowing unaffordable.
The answers to our fiscal problems can’t be gimmicks, deals or market manipulations. Instead, we will need an honest mix of taxes, spending cuts, entitlement reforms and economic growth.
The first step is to not make the deficit larger, which Trump’s current tax plan would do, by draining about $10 trillion in revenue over a decade. Instead, Trump should look at ways to simplify the tax code, make it more efficient, generate revenues, grow the economy and make our country more competitive.
One way to do that while protecting the middle class and lowering rates is to eliminate many of the breaks, deductions and credits in our 80,000-page tax code, many of which overwhelmingly benefit the wealthy.
The most important step is entitlement reform. Social Security and mandatory health-care programs are responsible for half of government spending today. If we don’t fix them, entitlements, along with interest on the debt, will consume all revenue by 2027.
That can’t be fixed, not even close, by simply cutting waste, fraud and abuse, as Trump pretends. Instead, it requires a Social Security plan that protects vulnerable groups, including people above a certain age or below a certain income level.
He should also look at fixing how we measure inflation for cost-of-living adjustments, adjusting the retirement age for growing life expectancy, and some means testing for wealthy individuals.
The sooner we make such changes, the more choices we have available and the more time workers would have to plan and adjust. If we wait 20 years, the cost of Social Security reform increases by 50%.
Trump has also talked about Medicare and health-care savings — a huge challenge — but hasn’t provided any specifics.
There’s no painless way to get rid of our debt. We need a leader who will acknowledge that fact and offer credible solutions, not budget fantasies.
"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.