Two decades of tax cuts and recession responses, plus increased bipartisan spending, have increased borrowing and overall debt in the United States.
In an article published by the American New York Times, writer Jim Tankersley said that America's debts are now 6 times what they were at the beginning of the 21st century, and have reached a record level since World War II compared to the size of the US economy, and it is expected to grow. At a rate of $1.3 trillion annually over the next decade.
According to the writer, the United States exceeded the legal limit for borrowing of $ 31.4 trillion last week, which put Washington on the brink of another financial confrontation, as the Republicans refuse to raise this limit unless President Joe Biden agrees to sharp spending cuts, which indicates a repetition of the confrontation scenario. Partisanship that has occurred on many occasions over the past two decades.
America's ballooning debt is the result of choices made by Republicans and Democrats alike.
Since 2000, politicians of both parties have borrowed money to fund wars, tax cuts, federal spending expansions, health care for baby boomers, and emergency measures to help the people survive two debilitating recessions.
Few economists believe that the level of debt represents an economic crisis right now, although some believe that the influence of the federal government has become so widespread that it is displacing private companies, which is a drag on growth.
But Wall Street economists warn that failure to raise the debt limit before the government starts dodging its bills - as early as June - could have catastrophic repercussions.
The writer pointed out that lawmakers have taken only a few steps to reduce the federal budget deficit resulting from the conflict between the two ruling parties, as it has been nearly a quarter of a century since the last time the government spent less than it received from taxes.
Given that spending programs are now so popular politically, budget experts say it is unrealistic to expect the budget to balance over another decade or more.
The White House estimates that the borrowed money will be needed to cover about a fifth of the $6 trillion federal budget this fiscal year, a budget that includes military spending, provision for national parks, safety net programs and everything else the government provides.
In just two decades, the United States has accumulated $25 trillion in debt, and the reasons for getting into this financial situation are rooted in a political miscalculation at the end of the Cold War.
US debt ceiling
The debt ceiling is the maximum total amount of money the federal government is allowed to borrow through US Treasury securities, such as bonds and savings bonds, to meet its financial obligations.
Since the US is running a budget deficit, it has to borrow huge sums of money to pay its bills.
America reached the debt technical limit on January 19, as the Treasury Department will now start using “extraordinary measures” to continue paying government obligations. These measures are essentially financial accounting tools that limit some government investments to be able to continue paying their bills. These options are exhausted by June.
Once the government exhausts its exceptional measures and runs out of cash, it will not be able to issue new debts and pay its bills, as the government can end up defaulting on its debts if it is unable to make the required payments to its bond holders. Such a scenario would be economically devastating and could plunge the world into financial crisis.
There is no official evidence of what Washington can do to prevent this catastrophe from happening, but it has plenty of options. The Treasury Department could try to prioritize payments, such as paying bond holders first, and if the United States defaults on its debt, the Federal Reserve could theoretically step in to buy some treasury bonds.
As for why there is a limit on borrowing, according to the Constitution, borrowing must be authorized by Congress, and the debt limit was established in the early 20th century so that the Treasury Department did not need to ask for permission every time it had to issue debt to pay its bills.
In light of the rise in military spending, federal revenue decreased, and this decline was a direct result of the tax cuts that Bush signed in 2001 and 2003, and those tax cuts were temporary, but in 2012, Obama struck a deal with Republicans in Congress to make more than 4-fifths of it permanent .
The growing amount of debt
According to the author, the Center on Budget and Policy Priorities - a left-leaning think tank - estimated that from 2001 through 2018, those tax cuts and additional interest costs for borrowing to finance them added up to $5.6 trillion, about a third of the additional debt incurred by the government in that time.
And in 2018, a new round of Republican tax cuts signed by President Donald Trump began that did not include spending cuts to offset the cost, and it was passed by some lawmakers who now argue that the government should not raise the borrowing limit without taking the first steps to curb debt.
The writer mentioned that some of the new permanent spending programs contributed to the growing volume of debt, as Josh Gordon, director of health policy at the Responsible Federal Budget Committee in Washington, says that the drug law - which was passed during the Bush era - clearly increased the deficit, as it cost more than 100 billion. dollars in 2022 alone.
Gordon points out that it was much more difficult to calculate the impact of the deficit on the Care Act, especially after the expansion of the healthcare budget during the Obama era, and the law led to increased federal spending on subsidies and health insurance programs, but it also raised some taxes, and the changes it made to the system contributed Healthcare - at least somewhat - in lower healthcare spending compared to previous expectations.
Some of the new permanent spending programs contributed to the growing volume of US debt (Getty Images)
recession crises
The author explains that the biggest drivers of increased debt are federal responses to severe recessionary crises: such as the financial crisis of 2008 and the pandemic recession of 2020.
Soon after Barack Obama took office in 2009, having inherited the recession, he pushed Congress to approve a package of nearly $800 billion in tax cuts and stimulus spending.
Safety net spending continued at high levels for the next several years as the economy slowly recovered.
Trump approved a much larger set of aid packages, totaling more than $3 trillion, after COVID-19 swept the world in 2020, with Biden taking office the following year and signing a $1.9 trillion stimulus plan soon after.
Economists disagree about the scale of those fiscal responses, but they agree that by borrowing money in the event of a severe downturn, the federal government helped revive the economy and protect individuals and businesses.
The writer believes that it is difficult to assign full responsibility to the heads or parties for the total levels of debt, because political decisions often affect each other.
By one measure, the debt has been a product of bipartisan politics, growing by $12.7 trillion under Bush and Trump, both Republicans, and by $13 trillion under Democratic administrations of Obama and Biden.
The writer concludes his report by saying that the repercussions of the financial policies of some presidents remain even after they leave office.