By Robert Reich / Substack
Last Thursday, The New York Times’ lead story was the Congressional Budget Office’s report that the U.S. is on track to add nearly $19 trillion to the national debt over the next decade — $3 trillion more than previously forecast.
“Yikes!” you might say. But calm down. The Times’s national debt story was alarmist nonsense.
“To put those numbers in context,” intoned the Times, “the total amount of debt held by the public will equal the total annual output of the U.S. economy in 2024, rising to 118 percent of the economy in 2033.”
If the Times believes this gives its readers context, I have a bridge in Brooklyn I’d love to sell the Gray Lady.
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You want context? Here’s context:
The national debt is expected to rise as a percent of the total U.S. economy largely for three reasons:
(1) The Federal Reserve is busily slowing the economy and causing interest rates to rise. As a result, the debt will become larger as a share of the total economy. And a larger portion of the total debt will be paid out in interest. Most of these interest payments will go to wealthy Americans who have lent the U.S. government money (both directly in the form of Treasury bills they’ve purchased and indirectly in all the Treasury bills bought by the funds in which they’ve invested).
(2) The giant baby-boom generation will soon collect Social Security and Medicare (or has already started to). But boomers (and post-boomers) rely on Social Security and Medicare. They’ve paid into it through their working lives. (There’s a good argument for raising the cap on income subject to Social Security taxes, requiring that people earning more than $400,000 a year contribute more, as President Biden has suggested, but that’s a different issue.)
(3) Republicans have slashed taxes on the wealthy, resulting in less federal revenue. Ronald Reagan, George W. Bush, and Donald Trump all reduced taxes on the wealthy (and the corporations on whose stock they collect capital gains). Note that these are many of the same people now collecting interest payments on their loans to the U.S. government.
So if you’re worried about the federal debt — and there are some good reasons not to be (see Modern Monetary Theory) — one of the first things you should do is repeal these tax cuts and restore taxes on the wealthy, who, not incidentally, are now taking home a record share of the economy’s gains.
Yet Republicans want to extend Trump’s tax cuts, at the cost of another $3 trillion. And they want to repeal funding of the Internal Revenue Service, whose extra funding is expressly for the purpose of auditing wealthy taxpayers. This will cost billions more, because wealthy taxpayers won’t pay all the taxes they owe.
Another critical point: A big chunk of the projected debt will finance investments in future growth: infrastructure such as roads, bridges, pipes, and the energy grid. Critical industries such as semiconductors. And the necessary shift from fossil to renewable energies. Without these investments, the U.S. economy would grow far more slowly and the debt would be even larger in proportion to it. These investments will reduce the debt as a share of the total economy.
How the hell can we expect Americans to make any sense of the debt numbers without this context?
For the Times to make the debt numbers its lead story without explaining this stuff is sheer scaremongering. Worse, it plays into the hands of Republicans determined to hold the credit of the United States hostage to the debt ceiling. (And, of course, raising the debt ceiling has nothing to do with taming future indebtedness but only with paying the nation’s past bills.)
Economic illiteracy is dangerous for a democracy, especially when exacerbated by mainstream media that should know better.
What do you think?
