As the U.S. Congress grapples with a deadlock battle over government spending that could soon lead to a government shutdown, the country is also suffering the highest peak in government debt of its history.
While the most conservative side of Republican lawmakers are arguing for spending cuts to compensate for a mounting debt that now reaches $33 trillion, a recent report puts Republican governments to blame.
According to the non-partisan think tank Center for American Progress, tax cuts enacted by the Bush and Trump administrations, with support from Congress, will cost the government an added $10 trillion in revenue by the end of this year.
The Perils of a Shutdown: A shutdown would have significant impacts on the economy, potentially affecting the stock market, several industries and an upcoming Fed decision to raise interest rates.
Over the weekend, President Joe Biden blamed the potential shutdown to “extreme Republicans” disregarding a prior debt ceiling agreement, while prominent GOP lawmakers, such as Matt Gaetz, argued that a short-term shutdown would be better than “continuing on the current path to America’s financial ruin.“
Congress’ hard-right House Freedom Caucus is arguing for spending cuts on all appropriation bills that need to pass to avoid a shutdown. Border control and financial aid for Ukraine are some of the key issues being debated, locking lawmakers into an almost impossible-to-solve quarrel.
Even GOP proposals for a temporary stop-gap spending bill, also known as a continuing resolution, carry too many politically heavy measures to pass the Democratic-controlled Senate.
On Monday, Donald Trump said that he backs the decision to shut down the government unless Democrats and less conservative Republicans agree with the demands of the Freedom Caucus.
“Unless you get everything, shut it down!” wrote the former president on Truth Social.
In June, lawmakers voted to suspend the debt ceiling for two years, allowing the government to take on the extra debt it needs to operate. The deal was reached between Biden and House Speaker Kevin McCarthy after weeks of suspense, taking the government dangerously close to defaulting — the equivalent of running out of money in the bank.
In the midst of this crisis, the federal government reached its highest debt mark ever: $33 trillion. This number is well over 12 times the market cap of Apple the world’s most valuable public company, or about twice the annual GDP of the entire European Union.
After the $33 trillion mark was passed, the government borrowed an average of $1 billion per hour. If borrowing continues at the same pace, debt could reach $50 trillion by the end of the decade.
Are Bush and Trump to Blame? According to a study released earlier this year, the recent spike in the country’s debt ratio is directly related to tax cuts enacted during the last three Republican executive terms, including Trump’s recent presidency and George W. Bush’s two terms between 2001 and 2009.
The debt ratio is understood as the total public debt as a percent of gross domestic product, and it currently equals 120%, meaning that the total worth of the U.S. debt surpasses its GDP by 20%. The U.S. has been owing more money than it produces since 2012, yet the government has had trouble bringing down the debt ratio since it spiked during the COVID-19 crisis.
According to an analysis by the Center for American Progress, federal debt as a percentage of the U.S. economy is on a path to grow indefinitely. Part of the reason behind this growing trend is demographic: increasing life expectancy, declining fertility, decreased immigration and rising health care costs are causing government revenue to fall behind spending.
The study authors argue that, while some Republican lawmakers are looking to enact spending cuts to overcome this issue, the real root comes from Republican measures taken during the Bush and Trump presidencies while they held control of the Congress.
“If not for the Bush tax cut and their extensions — as well as the Trump tax cuts — revenues would be on track to keep pace with spending indefinitely, and the debt ratio (debt as a percentage of the economy) would be declining,” reads the study.
The tax cuts are responsible for 57% of the increase in the debt ratio since Bush’s first government in 2001. That number would reach 90% if we removed the “one-time costs” from bills responding to COVID-19 and the Great Recession.
According to the study, tax cuts enacted by the Bush administration in 2001 will have cost more than $8 trillion by the end of fiscal year 2023. Yet the tax cuts were not aimed at helping the average citizen.
“These changes were enormously tilted toward the rich and wealthy,” says the report.
The U.S., compared to other countries in the OECD, is a relatively low-tax country, with only 26% of tax revenue as a percentage of GDP, compared to an EU average of 37%. Rates for Italy and France are even higher, at 43% and 45%, respectively.
Tax cuts signed by Trump in 2017 will have cost roughly $1.7 trillion by the end of fiscal year 2023, said the report.
The analysts recommend revising tax cuts “that largely benefited the wealthy,” as a means to reduce government deficit.
Image made using Midjourney AI.
Produced in association with Benzinga
