Debt Digest | $25 Trillion in New Debt since 2000
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Federal trust funds going bust. The Highway Trust Fund, Medicare Hospital Insurance trust fund, and Social Security trust fund are all projected to be depleted within the next decade. The Committee for a Responsible Federal Budget (CRFB) identifies 27 policy changes from CBO’s budget options that could “not only delay or avoid looming solvency but could also help to improve economic growth and help put the debt on a more sustainable long-term path.” Boccia previously highlighted five major CBO budget options here.
Cracking down on federal fraud. The Government Accountability Office (GAO) reported $60 billion in fraudulent unemployment insurance (UI) payments for the Department of Labor alone. The Department’s Inspector General testified that “unprecedented infusion of federal Covid-19 relief funds into UI programs during the pandemic gave individuals and organized crime groups a high value target to exploit.” The GAO recommends adopting a common set of definitions, improving detection and reporting mechanisms, and enhancing data collection to combat fraud across the federal government.
Student loan pause disproportionately benefits higher-income households. A study by the University of Virginia’s Diego Briones, Eileen Powell, and Sarah Turner finds that the top half of earners enjoyed 70 percent of the benefit from paused student loan payments. The CRFB further estimates the student loan pause has added up to 20 basis points to inflation and will cost up to $195 billion.
Prioritize spending cuts to reduce the deficit. Howard Gleckman of the Tax Policy Center argues that the GOP is wrong to assume balancing the federal budget is possible without raising taxes. However, studies of European austerity measures and other international experiences indicate successful deficit reductions focus on spending cuts, especially to social programs and government bureaucracies. Not only was increasing revenue less effective at reducing deficits, but it was also more economically harmful. Read Boccia’s fiscal agenda for Congress here.
How the U.S. grew the debt by $25 trillion in just two decades. The New York Times’ Jim Tankersley explains the recent history of deficit spending. “Politicians from both parties have made a habit of borrowing money to finance wars, tax cuts, expanded federal spending, care for baby boomers and emergency measures to help the nation endure two debilitating recessions…debt has been a bipartisan pursuit: It grew by $12.7 trillion when Mr. Bush and Mr. Trump, both Republicans, were in office, and by $13 trillion under the Democratic administrations of Mr. Obama and Mr. Biden.”
Reform entitlements to prevent a fiscal crisis. Mandatory or entitlement spending grows on autopilot based on statutes and formulas adopted decades ago. Social Security and Medicare are two of the largest programs. Combined, spending on these programs alone is projected to grow to more than 10 percent of GDP by 2032. The graph below shows how mandatory spending has nearly tripled as a share of the budget since 1962. As Boccia argues, “it’s impossible to stabilize federal debt without reducing the growth in major entitlement spending.”
