In the Vice Presidential debate, moderator Elaine Quijano asked what seemed like a fair and normal question about how neither campaign’s tax and budget plans would decrease the 19 trillion dollar debt and that in fact, both would increase. The question concluded about if they “concerned that adding more to the debt would be disastrous to this country?”. This question had several flaws and is part of the larger misunderstanding of America’s situation involving the budget and the national debt.
First this question, posed to Clinton’s VP Tim Kaine, and Trump’s VP, Mike Pence, seems to imply they are offering similar budget and tax proposals that would have similar effects on the national debt. This is terribly misleading. According to the bipartisan Committee for a Responsible Federal Budget Trump’s tax and budget proposal would increase the national debt by $5.3 trillion dollars after 10 years, 26 times more than the projected increase under Hillary Clinton. Furthermore, this estimate is on the generous side for Trump with many other economists estimate his debt increase after 10 years to be closer to $10 trillion dollars. So, before you become a single-issue voter on the national debt understand that even if both campaigns are increasing the debt, Trump is increasing it by orders of magnitude more than Hillary Clinton.
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The next issue with how this debate question, and most political rhetoric, addresses the national debt is entering the assumption that a national debt is a bad thing. Now to be clear, yes, in many cases an overly large debt burden can be devastating to a national economy but the United States isn’t nearing that point. Most economists agree that it is usually beneficial for a country to borrow money, if a) they get low-interest rates and b) can generate economic growth larger than the money they borrow. This is the same principal for why when someone is trying to start a small business rather than trying to save up their money until they can launch it, they apply for a small business loan from a bank. Also, the maintenance of a national debt is key to a strong national credit which allows us to borrow money in times when we need it such as World War II. In fact, the first United States Treasury Secretary, Alexander Hamilton, actively pushed for a national debt saying that “A national debt, if it is not excessive, will be to us a national blessing.” Now you may notice that that quote contains an important qualifier “if it is not excessive”. The primary metric used to evaluate this is known as the debt to GDP ratio which measures the amount of United States debt held by the public ($14.09 trillion) compared the size of our economy or our Gross Domestic Product (about $17.94 trillion). Currently, that comes out to be around 78% depending on which exact estimates you use. Now in their calculations, most economists and experts agree that the point at which the debt to GDP ratio becomes concerning is when debt begins to exceed GDP at around 110%. Thankfully we are still a far way off from what some call the “Greece-point” when your debt burden begins to scare off investments and increase interest rates which can lead to what is known as a debt spiral.
What should be concerning is the combination of what I just outlined. While currently (and under Clinton’s economic plan) although our debt may increase the debt to GDP ratio would not go up significantly thanks to a growing economy and shrinking deficit. However, under Donald Trump, the estimates become far more concerning with some placing the debt to GDP ratio after a Trump presidency as high as 105%. That could seriously begin to endanger America’s credit ratings, ability to attract foreign investment, and ability to borrow money at near 0 interest rates all of which could spell serious trouble for the national economy. So although the national debt is not the boogeyman people make it out to be and can at times be beneficial to our nation we need to pay close attention to who we elect and look closely at the numbers to see if they do, or don’t add up and what that means for our country and it’s future.
(Side Note: The common number that is thrown around for the United States debt is $19 trillion, which is technically correct. However, only $14 trillion of this is held by the public, with the other $5 trillion in what we call ‘intergovernmental holdings’, with the public debt being what is usually the cause for economic concern. To dispel one last myth about the debt, China does not “own the US” because of their debt holdings. China only holds 6% of the United States total debt and only 10% of its public debt. In fact, all foreign countries combined only hold around 30% of the public debt and the largest holder of America’s debt is American citizens and institutions)
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