Don C. Brunell: It is Time to Deal with our National Debt

Now that Hillary Clinton and Donald Trump are certain to be the Democrat and Republican presidential candidates, it is time for them to deal with our national debt.

Our nation is on an unsustainable borrowing trajectory. We now owe more than $19 trillion to lenders of which nearly half are off shore (including China). At the rate which we are selling treasury notes, the deficit will balloon to $21.1 trillion by 2020.

That means when the presidential election rolls around in four years, each taxpayer’s share of the debt repayment will be $163,000 if nothing is done to address it.

It is time for Trump and Clinton to tell voters how they are going to curb future borrowing. It will be an uncomfortable and emotional discussion.

The Peter Peterson Foundation, which focuses on putting our nation on a more sustainable long-term fiscal path, says time is running out. The longer elected officials push it under the carpet, the larger the problem becomes.

According to Peterson: “The non-partisan Congressional Budget Office (CBO) projects that national debt could rise to as much as 175 percent of gross domestic product (GDP) by 2040. That level of debt would far exceed the historical average of approximately 40 percent debt to GDP.”

Translated that means a rapidly escalating portion of our tax dollars will go to interest payments unless the next president and Congress acts to bring borrowing under control.

“By 2023, CBO projects that interest costs alone could exceed what the federal government has historically spent on R&D, non-defense infrastructure, and education combined. By 2050, they could be more than three times historical spending on those investments, as a share of GDP.”

The problem grows over time because six out of every 10 tax dollars goes to paying for so-called entitlements, most notably Social Security and Medicare. Entitlement spending increases as more people retire and life expectancy increases.

Compounding the problem is fewer workers are paying Social Security taxes. For example, in 1950 there were 16 workers for every Social Security recipient. By 2011, it dropped to three and is expected to go to two by 2030.

CBO projects that healthcare spending by all sectors of the economy — government, business, and consumers — will climb to 25 percent of GDP by 2040 even though healthcare costs per capita have grown less rapidly in recent years.

On the tax side, Peterson believes there could be $1.3 trillion in additional revenues from individual income tax reforms alone.

“Our tax system is complex, confusing, inefficient, and unfair. The tax code is riddled with tax expenditures, or ‘tax breaks,’ including loopholes, deductions, exemptions, credits, and preferential rates.” Peterson added.

Some of the reform ideas may include national consumption and carbon taxes. The consumption tax would work like our state’s sales tax and exempt food and medicine.

Restoring economic prosperity and fostering a climate of job growth is important as well. Individual income taxes are nearly half of the federal government revenue stream. Social Security and Medicare taxes add another 33 percent. They rise as employment rises.

Both Clinton and Trump would be wise to look at the Simpson-Bowles report released in 2010. Former Sen. Alan Simpson (R-Wyoming) and Erskine Bowles, former White House Chief of Staff under Bill Clinton, took the approach there is no silver bullet. It is a combination of taxes, economic growth and spending reductions.

Everything must be on the table and postponing the difficult decisions is not an option. The American voters need to know what both candidates will do about our skyrocketing debt.

There will be push back, but ignoring it is an injustice to our grandchildren who will pay the bill.

(Don C. Brunell is a business analyst, writer and columnist. He retired as president of the Association of Washington Business and now lives in Vancouver. He can be contacted at [email protected].)