As the 2016 presidential election moves into top gear each party is vying to win over their respective constituents with promises and grand overtures ranging from eliminating student loan payments to expanding our already burgeoning military spending. The problem with these out-of-control promises and misaligned fiscal priorities is that the government is spending ever more than it collects in tax revenues resulting in a large and growing deficit. In FY2014 for e.g., the federal government spent over $3.5 Trillion while collecting only $3.0 Trillion in revenues. The net result is a $500 Billion deficit, causing the National Debt to balloon upwards.

With fully two-thirds of the nation’s federal spending tied to mandatory items in the budget such as Social Security, Medicare & Medicaid, and Interest payments on the Debt there is hardly any wriggle room to continue adding to the nation’s spending priorities. And yet the Republican presidential candidates are continuing to spew out useless rhetoric that they will expand military spending well beyond the 17% of total spending that it currently occupies, while cutting taxes even further. The consequence of these inconceivable decisions is to expand the debt even further to a point where future generations will be trapped and unable to do anything else but repay it. Likewise, not to be outdone, their Democratic presidential counterparts are competing to see who can propose the most fiscally irresponsible list of social spending programs by stumping for free college, eliminating student loans, and expanding every welfare program known to mankind. Where will it end? Social Security and Healthcare spending such as Medicare & Medicaid already account for nearly a half of all federal spending (almost 10% of GDP) with the cohort of recipients growing faster than the general population. This means that future obligations will also grow at a fast clip. Yet as ominous as these facts are none of the presidential candidates are seriously addressing the challenges with a plan for dealing with these impending crises. Instead they selfishly preach to their converts the virtues of maintaining the status quo.

What does this mean for the future of America, one in which we’re either experiencing runaway military spending – albeit in a lower-tax environment – or enjoying ever expanded social welfare expenditures. It means that as a nation we can only afford that by adding to the already burdensome $19 Trillion National Debt, and that leads to two undesirable consequences. One is that the debt continues to incur ever exorbitant interest charges which have to be funded out of the current budget, and the other is that the debt has to be repaid at some point in the future (it cannot be deferred indefinitely). In FY2014 the federal government paid about $230 Billion in interest expenses (totaling nearly 7% of the budget) however this is somewhat misleading since that number does not count the Billions paid to other government agencies that also hold the national debt. Including those holdings reveals that we’re really paying over $430 Billion in interest expenses each year. That’s a staggering 12% of the total budget (nearly 3% of GDP) that’s not producing any current benefits to society, simply paying for the privilege of enjoying past expenditures. The added problem is that this number will only keep growing if we as a nation do not take a stand to reprioritize our spending. According to analysis from both the GAO and the Treasury Department interest payments on the National Debt will be the single largest category of spending within the next 50 years if we don’t change the current trajectory. Similarly, our debt-to-GDP ratio will reach unprecedented levels of over 300%, unheard of for a developed, industrialized economy.

The youth in America need to demand an open dialogue and discussion with those individuals currently running for the highest office in the land. If current trends continue these youths will not be able to enjoy any benefits from Social Security in 30 to 50 years’ time; and Medicare will not exist in any meaningful form for their parents to utilize, putting additional burden on them to look after their parents in the future, let alone themselves when the time eventually comes. Adding to that dilemma will be the fact that this younger generation will be asked to live with much higher tax rates to pay for servicing this mammoth debt which they had no part in its accumulation, and for which they enjoyed no benefits since all of the gains from it went to past and current generations of seniors and to war hawks. One of the most basic principles of economics is that of Costs and Benefits. Benefits and Costs should accompany the same economic units. Instead our runaway debt crisis will see the benefits accrue to the current and past generations of seniors and politicians among us, while their children and grandchildren will be left holding the bag and paying the price.

As at September 30, 2014 the Treasury Department in its Citizen’s Guide report illustrated that the Federal Government had assets of $3.0 Trillion but liabilities (including the national debt) of $20.8 Trillion. That means that the government is effectively broke. Instead of our presidential candidates debating ways to increase the deficit and ultimately the debt how about discussing ways to curtail the deficit, and eventually pay down the debt. Maybe we can start by restricting the budget to no more than 20% of GDP and the debt to no more than 100% of GDP. Next, we should consider capping benefits to today’s current seniors instead of promising them the moon, knowing full well that as a nation we just can’t afford it.

 

Keith Thompson is a Senior Economist in Transfer Pricing with an agency within the US Department of the Treasury, and an adjunct Economics professor with Ramapo College of New Jersey.