This week, the national debt reached a rather ignominious milestone—for the first time ever, the national debt topped $20 trillion. With the signing of a law that temporarily suspended the debt ceiling beyond its previous limit of $19.84 trillion (which was reached last March), the Department of the Treasury settled accounts and added about $317 billion to the federal debt.
While the government was up against its borrowing limit, the Treasury had been utilizing so-called “extraordinary measures” to meet day-to-day financial obligations. Extraordinary measures include the government deferring investments to certain civil pension funds until after the debt ceiling is raised.
The deal that President Trump made with Democratic leaders and ultimately enacted into law, suspends the debt limit yet again until December 8. Although this raised concerns that Washington will experience a “fiscal cliff” in advance of the holiday, because of the accounting measures that Treasury can employ, Congress will actually have “well into 2018” to come up with a new deal on the debt ceiling.
This milestone also highlights the need to pass tax reform legislation. Tax reform that lowers rates on individuals and corporations, as well as simplifies the tax code to reduce compliance burdens will allow for more robust economic growth. Economic growth and the national debt are highly interconnected issues, as a recent CBO report suggested that every additional 0.1 percent of GDP can reduce the deficit by around $327 billion.
Yet, as NTUF has warned, unchecked federal spending is the main driver of federal debt. Continual overspending causes a significant waste of taxpayer dollars on paying interest on the debt, a federal expense which is projected to surpass defense spending within a few years. As the national debt grows ever larger, the share of tax dollars going towards simply making interest payments will continue to grow larger as well.
There have been reports that President Trump is considering joining Senator Schumer and others in calling for repealing the debt ceiling altogether. Supporters of this position argue that the federal debt is a result of obligations incurred through laws passed by Congress. However, the limit forces lawmakers to periodically go on the record regarding their views on the sustainability of current debt levels. It was such an opportunity that led a Republican House majority, Democratic Senate majority, and a Democratic president to enact the Budget Control Act of 2011. This Act – the most significant budget reform achievement in recent memory – reset spending on a lower path that has so far saved $7,400 per household. Congressional focus should be on reining in spending (and there is no shortage of ideas), not on giving the Treasury a blank check to issue debt.