The rise of the federal debt over the past two decades has prompted countless warnings that the United States is approaching a fiscal reckoning, a day when the government won’t be able to drink all it wants from the fountain of easy money.
The more immediate danger is that the fountain keeps flowing.
The fear of a future crisis is distracting attention from the problems that the government’s dependence on debt is already causing. We, the people, are spending a staggering amount of money each year to borrow money. The interest payments on the federal debt now exceed the government’s spending on the military. They are roughly equal to the annual cost of Medicare. The sum is more than the government spends on anything except Social Security.
President Trump’s “Big Beautiful Bill” would deepen this profligacy, repeating the mistakes of the 2017 legislation on which it is based. Once again, Republicans are proposing to reduce taxation. Once again, they are proposing to force the government to borrow more to pay its bills. Once again, federal spending on interest payments would rise — and money spent on interest is money that can’t be spent on other things.
The government is on pace to pay more than $1 trillion to its lenders this year. The House version of Mr. Trump’s bill, already approved by that chamber, would increase interest payments on the debt by an average of $55 billion a year over the next decade, according to the Congressional Budget Office. The increase alone is enough money to fully repair every bridge in the United States. The Senate is still working on its bill, but early signs suggest it may cost even more than the House version.
Because the Trump administration and House Republicans have savaged the C.B.O.’s analysis, it is worth adding that Phillip Swagel, who heads the office, is a Republican reappointed at the behest of House Republicans just two years ago. At the time, they praised his “objectivity and integrity.” The C.B.O.’s analysis closely resembles independent assessments by the Penn Wharton Budget Model, the Yale Budget Lab and the Tax Foundation.
The C.B.O. also published an evaluation of the bill based on the methods that Republicans prefer, taking into account not just the direct impact on the government’s finances but also the indirect effects on the broader economy. That dynamic analysis found that the bill would have an even worse impact. The C.B.O. predicted that the expansion of federal borrowing would drive up interest rates, doubling the increase in borrowing costs to more than $100 billion a year.
And for what? Americans are being asked to bear this burden for a bill that would deliver tax cuts primarily to the wealthiest Americans while slashing health care and other government services for lower-income families. The C.B.O. estimates that the legislation would reduce the incomes of the poorest American families by almost 4 percent, while increasing the incomes of the wealthiest American families by more than 2 percent. It’s Robin Hood in reverse: Republicans are proposing to take hundreds of billions from the poor to give it to the rich. And the tax cuts are so large that they will add to the debt and force future generations to pay the bills.
The federal debt is as old as the nation, and adding to it can be prudent. During a war or a recession, when the government mobilizes resources, it makes sense to borrow money so that the cost can be spread out over time. Today’s debt is large partly because both parties backed big spending during the 2008 financial crisis and the Covid-19 pandemic.
In earlier eras, however, policymakers recognized the need to reduce the debt after a crisis had passed. Over the three decades after World War II, the debt shrank from an amount roughly equal to the nation’s annual economic output to less than a quarter of it. In recent decades, however, the United States has expanded borrowing even during periods of peace and economic growth. If Mr. Trump’s bill passes, the C.B.O. estimates the debt will equal 124 percent of annual economic output by 2034. That would be the largest debt in the nation’s history.
The increases in the debt are especially dangerous because after a long period of unusually low interest rates, rates have risen in recent years, making each dollar of borrowing more expensive. In the last fiscal year, the government paid an average rate of 3.6 percent. That was the highest average rate since 2009, but it was still lower than the average annual rates in every year between 1970 and 2008, according to the Center on Budget and Policy Priorities.
An expansion of federal borrowing is very likely to increase the upward pressure on interest rates. Mr. Trump’s hostility to America’s democratic tradition also creates interest-rate risk. Michael Klein, an economist at Tufts University, says the popularity of Treasury debt (and the low interest rates investors accept to hold it) has long been bolstered by confidence in the rule of law in the United States and in the long-term health of our economy. The Trump administration appears to be shaking that confidence, Mr. Klein and Charles Collyns concluded in a recent analysis.
In 2023, we criticized the Biden administration as well as congressional Republicans for failing to take meaningful steps to reduce the debt during a period of prosperity. But while both parties bear some responsibility, they do not bear equal responsibility.
Three times in the past half-century, Republicans have enacted large tax cuts that necessitated significant increases in federal borrowing. Each time they insisted the cuts would drive economic growth, even claiming that the expansion would be so large that the government would collect more tax revenue. Each time, they’ve been proved wrong.
Mr. Trump’s bill would be the fourth iteration of this failed experiment, and some Republicans are still retailing the same fantasies about the consequences. “This will reduce the deficit, not increase it,” Senator John Thune of South Dakota, the Senate majority leader, said last week. That is simply false.
The expected increase in the debt is particularly absurd because the government would borrow much of the money from the same people who got the biggest tax cuts from the bill. Roughly half of the government’s debt typically is sold to American investors, and those investors are disproportionately affluent. When the government borrows from them rather than raising taxes, it is getting the same money from the same people on less favorable terms. Instead of taxing the rich, the government pays them interest.
Bringing the debt under control will require two things above all else: The government needs to raise taxes, especially on the wealthy, and it needs to make long-term changes in Social Security and Medicare, the major drivers of spending growth. The Republican Party controls both houses of Congress and the White House. Mr. Trump and his allies have the power to deliver a fiscally responsible plan. Instead, they are playing make-believe.
A small number of Senate Republicans have expressed reservations about this situation. Senator Rick Scott of Florida has said the projected growth in the debt is “fiscal insanity,” and Senator Ron Johnson of Wisconsin has called it “unacceptable.” They’re right about that much. The refusal to confront America’s fiscal problems has a price, and it is rising rapidly.
Source photographs by Fedotov Anatoly, via Getty Images.
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