'Trump has not made fiscal responsibility a priority': fiscal policy expert
Chelsea Lombardo
Yahoo Finance December 28, 2019
The United States Government touched a new record for selling long-term debt on Thursday, after the Treasury Department auctioned its latest seven-year notes, the Wall Street Journal reported.
The auction raised the total sum of U.S. government notes and bonds ranging from two to 30 years to a whopping $2.55 trillion. According to the Wall Street Journal, the total sum is now up 26% from 2017 — when President Trump and Congress slashed the corporate tax rate from 35% to 21%.
American Action Forum Director of Fiscal Policy Gordon Gray told Yahoo Finance's The Ticker on Friday that with low interest rates, this debt is not sustainable for the U.S. economy.
"The debt competes with private investment," Gray said. "It also means that policymakers have sort of less flexibility to respond to future recessions, geopolitical crises, and other exigencies that frankly, costs a lot of money. Right now, we're at something like 80% of GDP in terms of the debt over the next decade, that's going to start approaching 100% of the GDP. Eventually, we sort of run out of the ability to borrow to pay for crises, and that's a real concern...we sort of raised the possibility raise the risk of a potential fiscal crisis. We're not staring down the barrel of one yet, but the higher the debt goes without any plan to address it, the more we entertain that risk."
WASHINGTON, DC - JUNE 29: U.S. President Donald Trump speaks during an event at the East Room of the White House June 29, 2018 in Washington, DC. Trump held the event for Òcelebrating the six month anniversary of the Tax Cuts and Jobs Act.Ó (Photo by Alex Wong/Getty Images)
The federal budget deficit — in which the U.S. government spends more money than it collects from the Treasury Department — is historically large, according to the Congressional Budget Office (CBO). The deficit stands at $960 billion in 2019, according to the CBO, which projects that it will average at $1.2 trillion between 2020 and 2029.
The federal debt, the money the U.S. government owes, will climb along with the deficit, from 79% of GDP in 2019 to 95% in 2029, according to the CBO. That's the highest level since right after World War II.
"President Trump has not made fiscal responsibility a priority of his administration," Gray stated. "We can see the increase in the debt and just his rhetoric on this and unwillingness to address entitlement programs, which are sort of the biggest structural drivers of the U.S. deficit… Recently, we've had the tax cuts... and they cost $1.5-$2 trillion. I think that was a bad mistake fiscally."
The Committee for a Responsible Federal Budget recently reported that policy makers added $2.2 trillion to national debt this year, including additional provisions that will add $500 billion in debt over the next decade.
"I think avoiding unforced policy errors would go a long way and sustaining the recovery," Gray said. "So enough with the trade wars, enough with I think the uncertainty that he's [Trump] injected just into the overall policy process. So I'd like to see just a little bit more certainty in the policy outlook. I don't expect a lot of big legislative accomplishments next year."
"As long as people are working and seeing their wages increase, then the US economy can can go strong, even when the rest of the world is, is slowing down," Gray continued. "…Right now we're looking at one and a half to maybe just under 2% GDP growth for the coming year. I'd like to think we can do better."
Chelsea Lombardo is a production assistant for Yahoo Finance. You can find more of her work here.
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