Bipartisan economists are weighing how the policies of presidential hopefuls Donald Trump and Kamala Harris will impact Uncle Sam’s national debt burden. After all, the fiscal decisions they make once either of them enters the White House will impose costs on generations to come.
Unfortunately for the growing number of experts concerned that America’s $35 trillion public debt will become theoretically unsustainable, new analysis from the Penn Wharton Budget Model (PWBM) shows neither Trump nor Harris will offer much relief.
The fact that national debt is growing isn’t necessarily a problem—in fact sometimes it’s healthy: Government borrowing means pumping money into an economy to help it grow, investing in the labor force, and selling that debt to create a stable bond market.
As Alexander Hamilton, America’s first secretary of the Treasury, said: “A national debt, if it is not excessive, to us will be a national blessing.”
Nations have long had and held debt—the U.S. has run deficits since its very inception—meaning any crisis is a relatively slow-moving beast. The PWBM, for example, sets the countdown to any crash as a result of public debt to two decades.
What’s different in 2024 is that experts are concerned the U.S. economy won’t grow fast enough to foot the bill governments are continuing to rack up, and won’t be able to keep up with interest payments coming down the line.
The national debt can’t be hung around the neck of either a Republican or Democratic administration. Both parties were forced to shell out massive fiscal stimulus courtesy of the COVID pandemic.
Yet economists are warning that regardless of who wins, either a Trump or a Harris administration would not only do nothing to abate the problem, they’re both actually going to make it worse.
Trump: Explicit but expensive
There are two ways to rebalance the debt-to-GDP ratio.
- The first—an unpopular but obvious choice—is to cut back spending.
- The second is to stimulate growth. When an economy gets larger, the relative size of its debt shrinks—making it easier to pay off.
Continued government spending, therefore, could be welcome—as long as it leads to actual economic growth.
This is not the case with former President Trump’s proposed policies, according to Kent Smetters, professor of business economics and public policy at the Wharton School of the University of Pennsylvania. The university is home to the PWBM, a nonpartisan research organization that provides analysis on the impact of proposed fiscal policies.
Neither Trump nor Harris gets a glowing review from the think tank—though Trump’s policies are the significantly more expensive option of the two.
According to PWBM’s estimations, Trump’s policies—which include various tax cuts and a trade war with China—would add an additional $5.8 trillion in new debt over the next 10 years. The Congressional Budget Office (CBO) already expects national debt to exceed $50.5 trillion by 2034.
“On one hand, we can kind of read Trump pretty clearly,” Smetters tells Fortune. “He says that he’s going to extend tax cuts, lower the corporate rate; he wants to end tax on Social Security benefits. Some of the other stuff is more clickbait—it’s unclear how that would ever be implemented.
“But nonetheless we can read him pretty clearly. Trump is explicit but expensive.”
Representatives for the Trump campaign did not respond to Fortune’s request for comment. It told CNBC: “President Trump is a businessman who built the greatest economy in American history, and certainly doesn’t need economics lessons from the radical San Francisco liberal pushing Communist price controls” (a reference to Harris).
Harris: Difficult on details
On the Democratic side, Harris’s pledges are harder to pin down, Smetters says—not least because it’s unclear which parts of the Biden administration budget she’d be continuing.
Smetters points to the fact that the campaign has indicated support for the $5 trillion tax plan proposed by the Biden administration but has glossed over whether its spending obligations would also be carried forward.
“It’s very hard to pin down, and depending which … political side you’re on, you’re gonna pick and choose what she is saying,” Smetters notes. “It’s not a rational process for us to try to analyze, so we’ve focused on what they’ve actually said explicitly.”
Her current campaign policies—including an expanded child tax credit and incentives for first-time homeowners—would add $1.2 trillion to national debt by 2034, PWBM expects. This could rise to $2 trillion, allowing for negative economic feedback.
Representatives for the Harris campaign did not respond to Fortune's request for comment, though they told CNBC: “Donald Trump’s Project 2025 economic agenda is an inflation and deficit bomb that makes the middle class pay more and the rich pay less.”
No-growth economy
Smetters and the PWBM believe that, ultimately, neither Trump’s nor Harris’s spending would elicit any economic activity which wouldn’t happen otherwise.
“Ultimately, they’re really not using debt dollars to stimulate the economy very much. They’re using debt dollars to deliver intramarginal gains—rewarding activity that otherwise would have still happened,” Smetters explains.
“So you may believe, for example, in an expanded child tax credit for redistribution reasons … but we don’t believe that the tax credits are big enough that they’re actually going to stimulate people to have more kids and grow the economy.”
On the Trump side there is just simply “not enough growth,” Smetters adds.
Politicians playing chicken
Ultimately, Smetters fears what everyone from Jamie Dimon to Jerome Powell to Larry Fink is also alarmed by: that politicians will bury their heads in the sand until it’s too late.
JPMorgan CEO Dimon uses the analogy of a “cliff.” Smetters sees the problem as a game of chicken.
“Both sides are trying to get what they want and are trying to make the other side ultimately be the one to sacrifice in order to eventually curtail the debt growth,” Smetters explains. “But how do you win a game of chicken? You have to act more crazy than the other side.
“The problem is often the cars do crash, and this is the game that we’re playing right now.”
Under current Penn Wharton models, two options are on the table to avoid a financial crisis as a result of national debt:
- The first would be to increase taxes across the board by 30% “always and forever.”
- The second would be to cut spending overnight by 25%—again on a permanent basis—on everything from Social Security to Medicare.
While the likes of raising the pension age would also help, Smetters adds, it will take too long to phase in. As a result, he adds, a combination of the above policies is immediately necessary to avoid a financial crisis in the future.
“The longer we wait, the more painful those choices become,” Smetters adds. “We think of the United States as too big to fail. It’s not actually true.
“I think the U.S. population—maybe the world—has gotten pretty numb to the idea of financial crisis,” Smetters adds. “The last two we buffered pretty well—2008 and COVID—and how did we do it? We increased debt. We borrowed our way out of it.
“The problem is that when the crisis itself is caused by debt, you don’t have that option anymore.”
