WASHINGTON – America’s debt is now six times higher than it was at the beginning of the 21st century. Relative to the size of the US economy, it is the largest since World War II and is assumes growth an average of about $1.3 trillion a year for the next decade.
The United States hit its legal borrowing limit of $31.4 trillion last week, putting Washington on the brink of another fiscal showdown. Republicans are refusing to raise that limit unless President Biden agrees to steep spending cuts, echoing a partisan dispute that has played out several times over the past two decades.
But America’s mounting debt is the result of decisions by both Republicans and Democrats. Since 2000, politicians of both parties have made a habit of borrowing money to finance wars, cut taxes, expand federal spending, care for baby boomers and emergency measures to help the nation weather two debilitating recessions.
“There have been bipartisan tax cuts and bipartisan spending increases” that have fueled that growth, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget and perhaps the leading deficit hawk in Washington. “It’s not a simple story of Republicans cutting taxes and Democrats increasing spending. In fact, everyone likes to do it.”
Few economists believe that debt levels are currently an economic crisis, although some believe that the federal government has become so large that it is replacing private business, hurting growth in the process. But economists in Washington and on Wall Street warn that not raising the debt limit before the government starts to avoid its bills — as early as June — could prove disastrous.
Despite all the fighting, lawmakers have taken few steps to reduce the federal budget deficit they created. It’s been almost a quarter of a century since the government last spent less in taxes than it took in.
With spending programs so politically popular today, and with retiring baby boomers driving up the cost of programs like Social Security and Medicare every year, budget experts say it’s unrealistic to expect the books to balance again in the next decade or more.
The White House estimates the borrowed money will be needed to cover about one-fifth of this fiscal year’s $6 trillion federal budget — a budget that includes military spending, national parks, safety net programs and everything else the government provides.
In just two decades, America has added $25 trillion in debt. How it got into this fiscal position is rooted in a political recalculation at the end of the Cold War.
In the 1990s, America reaped the so-called peace dividend. She cut spending on the military, believing she would never have to invest in national security as much as when the Soviet Union was a threat. At the same time, the dot-com boom produced the highest federal tax revenue as a share of the economy in decades.
Understand the US debt ceiling
What is the debt ceiling? Debt ceiling, also called debt limit, is a cap on the total amount of money the federal government is authorized to borrow through U.S. Treasury securities, such as notes and savings bonds, to meet its financial obligations. Because the United States runs budget deficits, it has to borrow huge amounts of money to pay its bills.
As the 20th century ended, America’s coffers were flush with tax revenue and light military commitments, a combination that many leaders thought would last well into the future.
It didn’t even last a year.
The dot-com bubble burst and reduced tax revenues. The terrorist attacks of September 11, 2001, fueled a furious push for rearmament in Washington as President George W. Bush mobilized for the wars in Iraq and Afghanistan.
Mr. Bush, a Republican, broke historical precedent by not raising taxes or issuing war bonds to pay for these conflicts. (War bonds tend to pay lower interest than other government bonds, contributing to less debt.) Neither did his successor, President Barack Obama, who inherited those conflicts. The resulting spending increased the national debt by trillions of dollars.
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Ministry of Defense last year he estimated that direct costs during the wars in Iraq, Syria and Afghanistan they exceeded 1.6 trillion dollars. Brown University researcherswho added in indirect costs, particularly care for veterans from those wars and interest on money borrowed to fund the military, found that the total cost was much higher: just under $6 trillion for all of America’s “war on terror” efforts in the aftermath of 9/11 .September.
As military spending soared, federal revenue declined as a share of the economy. The decline was a direct result of the tax cuts Mr. Bush signed in 2001 and 2003. Those tax cuts were temporary, but in 2012 Mr. Obama struck a deal with congressional Republicans to make more than four-fifths of them permanent.
Center for Budget and Policy Priorities, a left-leaning think tank, he guessed that from 2001 to 2018, those tax cuts and the extra interest costs on the loans to finance them added up to $5.6 trillion — or about one-third of the additional debt the government created during that time.
2018 saw the start of a new round of Republican tax cuts signed into law by President Donald J. Trump — which did not include spending cuts to offset their costs. They were approved by some of the same lawmakers who now say the government can’t raise the borrowing limit without first taking steps to curb the debt.
Some conservatives argued that the cuts would “pay for themselves” by increasing economic growth and tax revenue, but independent analysts disagreed. The nonpartisan Congressional Budget Office estimated in 2018 that the bill would add more than $1.2 trillion to the debt by fiscal year 2022, even after accounting for increased economic growth.
“If you want to have lower revenue, you have to be willing to control spending,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office who now runs the conservative think tank American Action Forum. “The Republicans’ Achilles heel has been that they love tax cuts, but they don’t want to be serious about it.”
Some new permanent spending programs also contributed to the debt. The Medicare prescription drug bill, passed on a bipartisan basis under Mr. Bush, has “clearly” increased deficits and cost more than $100 billion in 2022 alone, said Josh Gordon, director of health policy for the Committee for a Responsible Federal Budget in Washington.
Mr. Gordon said it was much harder to calculate the deficit impact of the Affordable Care Act, Mr. Obama’s signature health care expansion. The law increased federal spending on Medicaid and health insurance subsidies. But it also raised some taxes. And the changes it made to the health care system helped — at least to some extent — to lower Medicare spending compared to previous projections, offsetting some or all of the spending increases.
“Obviously you wouldn’t want to give the ACA all the credit” for reducing Medicare spending, Mr. Gordon said in an email, “but I think it had a significant impact.”
Mr. Holtz-Eakin estimates a larger deficit effect of the Affordable Care Act. He also blames lawmakers for not doing more over the past two decades to reduce growth in Social Security and health care spending, already under financial pressure from the first waves of retiring baby boomers.
The biggest—and often bipartisan—drivers of the debt have been federal responses to two sharp economic downturns: the financial crisis of 2008 and the pandemic recession of 2020. Shortly after Mr. Obama took office in 2009, he inherited a recessionary Congress to pass nearly 800 billion package of tax cuts and stimulus spending. Safety net spending continued at high levels for the next several years as the economy slowly recovered.
Mr. Trump approved a much larger collection of aid packages, totaling more than $3 trillionafter Covid-19 swept the world in 2020. Mr. Biden took office the next year and signed $1.9 trillion stimulus plan soon after.
Economists disagree on the magnitude and design of these responses. But they generally agree that by lending money during a sharp downturn, the federal government helped to revive the economy and protect people and businesses.
“Not all debt is created equal,” said Lindsay Owens, an economic sociologist who is executive director of the liberal Groundwork Collaborative in Washington. “When we make critical investments and stimulus coming out of a recession, there are many economic benefits to keeping money flowing in the economy, keeping unemployment astronomically high, and keeping small businesses insolvent.”
It is difficult to fully assign responsibility for the total amount of debt to individual presidents or parties because policy decisions often interact. By one rough measure, the debt has been a bipartisan pursuit: It rose by $12.7 trillion when Republicans Bush and Trump were in office, and by $13 trillion under the Democratic administrations of Mr. Obama and Mr. Biden.
This calculation ignores the reverberations that policy decisions can have even after presidents leave office. For example, Mr. Bush’s tax cuts continue to reduce federal revenue. In a recent article, Charles Blahous, a researcher at George Mason University who studies the federal budget, tried to assign blame to presidents and parties in Congress for the federal deficit at different times.
Mr. Trump bore most of the blame for the 2021 deficit, he wrote, even though he was out of office. Mr. Biden finished second.
Margot Sanger-Katz contributed reporting.