For Harris and Trump, the galloping American debt is the sore subject

There was a time when the growing national debt of the United States was a major talking point during presidential elections.

The last debate between Donald Trump and Hillary Clinton in 2016 included a 12-minute segment devoted to this topic.

Barack Obama and Mitt Romney clashed over this issue during their three debates in 2012.

Fast forward to 2024 and apparently the national debt no longer matters.

The word “debt” was not mentioned once during the first, and so far only, debate between Trump and Kamala Harris earlier this month.

The Republican Party, traditionally the most eager to assert fiscal responsibility, did not include a single reference to debt or the deficit in its 16-page platform document released in July.

It’s not as if debt is any less relevant today than it was during the last election – quite the contrary.

In 2012, the national debt, excluding money the government owed to itself, was $11.4 trillion, or about 69.5 percent of gross domestic product (GDP).

Today, that amount stands at about $28 trillion, or about 99% of GDP.

The Congressional Budget Office (CBO) projects that figure will exceed $51 trillion over the next decade, bringing the debt-to-GDP ratio to 122 percent – higher than in the aftermath of World War II.

Neither Trump nor Harris have paid much attention to this ticking time bomb, much less put forward any serious proposals to defuse it.

In fact, the policies of both candidates are destined to make the situation significantly worse.

While grandiose promises from politicians are nothing new, Trump and Harris have rolled out so many big-ticket commitments — from Trump’s promise to extend his 2017 tax cuts to Harris’ plan for $25,000 in aid for first-time homebuyers — that independent budget forecasters have struggled to keep up.

The nonpartisan Tax Policy Center has estimated that Harris’ agenda could increase the deficit by $2.6 trillion over the next decade, while Trump’s proposals would increase the deficit by $1.2 trillion.

Penn Wharton’s budget model, which does not include some of the candidates’ most recent promises, estimates that the deficit would increase by $4.1 trillion under Trump and $2 trillion under Harris.

“Neither candidate wants to address this issue,” Gary Hufbauer, a nonresident senior fellow at the Peterson Institute of International Economics, told Al Jazeera.

“They both decided that talking about debt reduction was a losing proposition,” Hufbauer added.

Economists are now debating how much debt the U.S. economy can support before it becomes a serious problem.

Unlike households, governments have indefinite planning horizons that allow them to constantly renew their debts.

When it comes time for governments to repay their creditors, they can simply issue new debt to meet their obligations.

Compared to other countries, the United States enjoys a special advantage in debt management because of the dollar’s status as the world’s primary reserve currency.

Because the dollar is held in large quantities by central banks and financial institutions around the world, the U.S. government can borrow at lower interest rates. It can also borrow in its own currency, which allows it to avoid exchange rate fluctuations that would increase the cost of repayment.

Nevertheless, there is general agreement that there is a point beyond which debt cannot continue to grow without causing serious economic repercussions.

Economists at the Penn Wharton Budget Model argued in an analysis published last year that financial markets could not support public debt exceeding 200% of GDP.

Jagadeesh Gokhale and Kent Smetters have predicted that the U.S. government has about 20 years to take corrective action before reaching a point where no amount of tax increases or spending cuts could avert a default — a scenario that would send shockwaves throughout the global economy.

“This timeline is a ‘best-case’ scenario for the United States, under market conditions where participants believe that corrective fiscal actions will occur in advance,” Gokhale and Smetters wrote in their analysis published last October.

“If, on the contrary, they began to believe the opposite, the debt dynamics would further reduce the time needed to take corrective measures.”

Even if such a catastrophe, such as a government default, does not occur, the CBO projects that all federal government revenues will be devoted to Social Security and debt interest payments by the mid-2030s.

As every cent of tax revenue is swallowed up by mandatory government spending, future administrations may be limited in their ability to invest in growth-enhancing innovations or respond to emergencies such as recessions or the next pandemic.

Unfortunately, there is no painless solution to the debt problem that does not involve a combination of spending cuts and tax increases. And the longer we delay action, the more bitter the remedy will be.

But in the age of populism, politicians are reluctant to talk about tough choices, and voters are reluctant to listen.