Key Points:
- If not for the tax cuts implemented by Bush and Trump, the U.S. debt would now stand at $23 trillion, which is lower than the national GDP.
- The debt ratio is presently increasing and is expected to continue rising indefinitely if the current tax policy remains unchanged.
As the U.S. Congress deals with a heated dispute over government spending that might soon result in a government shutdown, the country is also facing the highest level of government debt in its history.
Some conservative Republican lawmakers believe that to address this growing debt, we should cut down on government spending. Currently, the national debt stands at $33 trillion.
According to a recent report from the non-partisan think tank Center for American Progress, the tax cuts implemented during the Bush and Trump administrations, with Congress’ support, will lead to a loss of $10 trillion in government revenue by the end of this year.
The Risks of a Shutdown: If a government shutdown occurs, it could have significant consequences for the economy. It might impact the stock market, various industries, and even influence the Federal Reserve’s decision to increase interest rates.
President Joe Biden attributed the potential shutdown to “extreme Republicans” who are not honoring a previous agreement on the debt ceiling. On the other hand, prominent GOP lawmakers like Matt Gaetz argue that a short-term shutdown would be preferable to “continuing on the current path towards damaging America’s finances.”
The hard-right House Freedom Caucus in Congress is pushing for spending cuts in various bills that need approval to prevent a government shutdown. Contentious issues include border control and financial assistance for Ukraine, and this disagreement is making it extremely challenging for lawmakers to find a solution.
Even proposals from GOP members for a temporary stop-gap spending bill, also known as a continuing resolution, include provisions that are politically sensitive and would be difficult to pass in the Democratic-controlled Senate.
On Monday, Donald Trump expressed his support for shutting down the government unless Democrats and less conservative Republicans agree to the demands of the Freedom Caucus. He said, “Unless you get everything, shut it down!” on Truth Social.
Back in June, lawmakers voted to temporarily suspend the debt ceiling for two years, allowing the government to borrow the additional funds needed to function. This decision was reached after weeks of uncertainty, with President Biden and House Speaker Kevin McCarthy working out a deal to prevent the government from dangerously approaching default, which is akin to running out of money in the bank.
Amidst this crisis, the federal government has reached an all-time high in debt, totaling $33 trillion. To put that into perspective, this is more than 12 times the market value of Apple, the world’s most valuable public company, and roughly twice the annual economic output of the entire European Union.
Surpassing the $33 trillion milestone, the government has been borrowing an average of $1 billion per hour. If this borrowing pattern continues, it’s possible that the debt could soar to $50 trillion by the end of the decade.
Are Bush and Trump Responsible? A study released earlier this year suggests that the recent surge in the country’s debt ratio can be directly attributed to tax cuts implemented during the last three Republican presidential terms, which include Donald Trump’s recent tenure and George W. Bush’s two terms from 2001 to 2009.
The debt ratio is a measure of the total public debt as a percentage of the gross domestic product (GDP). Currently, it stands at 120%, indicating that the U.S. owes more money than its economy generates, a situation that has persisted since 2012. However, the government has faced challenges in reducing the debt ratio since it spiked during the COVID-19 crisis.
According to an analysis conducted by the Center for American Progress, the amount of federal debt compared to the overall U.S. economy is on track to keep growing without end. There are a few reasons behind this concerning trend. One key factor is demographic changes: people are living longer, having fewer children, immigration rates have decreased, and healthcare costs continue to rise. These factors have led to a situation where government spending is outpacing revenue.
The study’s authors argue that while some Republican lawmakers are proposing spending cuts as a solution to this problem, the real source of the issue lies in Republican policies implemented during the presidencies of both George W. Bush and Donald Trump when they had control of Congress.
The study states, “If it weren’t for the Bush tax cuts and their extensions, along with the Trump tax cuts, government revenues would have been sufficient to keep up with spending, and the debt ratio (which measures debt as a percentage of the economy) would have been decreasing.”
In fact, the tax cuts are responsible for 57% of the increase in the debt ratio since the start of Bush’s first term in 2001. This number would rise to 90% if we exclude the “one-time costs” associated with bills responding to events like COVID-19 and the Great Recession.
According to the study, the tax cuts introduced during the Bush administration in 2001 will have cost more than $8 trillion by the end of fiscal year 2023. However, these tax cuts were primarily aimed at benefiting the wealthy and high-income individuals.
When we compare the U.S. to other countries in the OECD, we see that it’s a relatively low-tax nation. Tax revenue accounts for only 26% of GDP, compared to an EU average of 37%. In countries like Italy and France, tax rates are even higher, at 43% and 45%, respectively.
The tax cuts signed into law by President Trump in 2017 are projected to cost approximately $1.7 trillion by the end of fiscal year 2023, according to the report.
In light of these findings, the analysts recommend a reconsideration of tax cuts “that mainly benefited the wealthy” as a means to reduce the government deficit.
