The 2011 downgrade of the U.S. debt rating, and the massive market sell-off that it triggered, serve as a reminder that there is no substitute for thoughtful and responsible elected officials. President Trump’s suggestion that we threaten to default on our debt rather than dealing honestly with it reflects a level of immaturity and ignorance that are the fiscal equivalent of joking about thermonuclear war.
It is illuminating that in 2017, after years of campaigning against the national debt, Republicans added 9.5 Trillion Dollars to our debt in the very first Budget they passed after gaining complete control of government. We need representatives who understand the real nature of the problems we face, and act the long-term best interests of the people they serve – rather than out of hypocritical political expediency or rigid ideology.
Bill opposed the Republican tax bill because it did not give relief to hardworking Americans. It massively increases the deficit and debt by giving unnecessary tax breaks to billionaires and international corporations and created over two trillion dollars in new debt future taxpayers will have to repay. As a businessman, Bill understands that we must have a strong middle class if we want a strong economy. Too many individuals struggle with record credit card debt and student loans that leave little room to save for the future. The Republican Tax Plan has only exacerbated these problems even as the stock market sees record highs.
The plan’s cap on the state and local tax (SALT) deduction specifically hurts one-third of Illinoisans. Illinois already loses tens of billions of dollars every year because we pay far more in federal taxes than we receive in federal spending and Bill was proud to vote to lift the SALT cap at the end of December this year.
While both parties share some responsibility for our federal debt, the situation is far from symmetric:
- When Bill Clinton left office, our government was running a surplus and the debt was projected to be paid down to zero by the end of 2009. If Clinton-era policies had been left in place, the saved surplus (negative debt) today would have been 25% of GDP, or about $4T.
- When Republicans assumed power in 2001 their policies turned the surplus into a deficit within months. These misguided policies included wars that were put on our credit card, massive spending increases without matching tax increases, and poorly structured tax cuts that increased debt but only produced jobs offshore. A financial meltdown was triggered by complete failure of Republican regulatory, monetary, and fiscal policy. By the time President Bush left office, the projection for today’s debt had changed from a projected Surplus of 25% of GDP to deficit of 125% of GDP … a breathtaking swing of 150% of GDP or over 30 Trillion dollars.
- Since President Obama assumed office, the annual deficit has been cut by two thirds (from $1.5T/yr to less than $500B/yr) and debt has stabilized at 75% of GDP. This represents a reduction in today’s debt of about 75% of GDP or about $12T.
- Most of this debt reduction is due to the economic recovery following the stimulus. The next significant factor has been the dramatic drop in health care cost growth since the passage of the Affordable Care Act (Obamacare).
- Only a small fraction (<10%) of the deficit reduction has been due to the Ryan-Murray “Fiscal Cliff” budget deal, since it delayed most cuts to later years, reduced demand by further reducing disposable income of the middle class, and shifted spending towards military expenditures that do not contribute to long-term economic growth.
THE WAY FORWARD ON OUR NATIONAL DEBT
The loss of the United States’ AAA credit rating – and the trillion-dollar market sell-off that resulted – would have been avoided if agreement had been reached on a “grand bargain” to reduce our deficits. President Obama’s Bipartisan Deficit Commission produced such a plan. At its heart was a compromise that reduced debt by $4T using a mixture of 75% spending cuts and 25% tax increases. A similar compromise by President Reagan relied on 75% Tax increases and 25% spending cuts.
Key to this compromise was the recognition that spending for economic stimulus was necessary to prevent the collapse of demand during the financial crisis, but that the debt from this spending must be paid back as the economy recovers.
This compromise approach was supported by the majority of Americans. So why did it not happen?
The short answer is that ideological anti-tax pledges signed by a majority of Republicans – including every member of the Illinois Republican delegation – meant they had pledged to refuse to negotiate or compromise. In a situation where the vast majority of our national debt is due to Republican policies, this will lead to disaster.