The Federal Debt Is Rising. Concern Is Not. – The New York Times

WASHINGTON — The federal debt ticked past $22 trillion this week, a record that comes despite continued economic growth, but neither political party appears to be making a priority of debt reduction.

Larry Kudlow, the director of President Trump’s National Economic Council, said on Thursday that the president was “concerned” about the rise of the debt, and that the administration would propose some reductions in federal spending in its next budget.

But he said the scale of the debt was not “a problem.”

During the first two years of the Trump administration, the debt increased by more than $2 trillion, in part because of the $1.5 trillion tax cut and large spending increases the president has signed into law.

Leading Democrats also have left the issue largely untouched. Several members of the emerging field of presidential candidates have proposed tax increases, but they have generally presented those plans as antidotes for economic inequality, not measures aimed primarily at curbing the debt.

The absence of alarmist talk about federal borrowing represents a sharp shift. Republicans repeatedly criticized the growth of federal spending under President Obama as unaffordable and dangerous. Some Democrats criticized President George W. Bush’s tax cuts for the same basic reasons.

But dire warnings about the consequences of federal borrowing have proved premature at best, and the political landscape has shifted. Republicans have embraced Mr. Trump’s agenda of tax cuts and spending increases, arguing that it will lift economic growth. Democrats are seeking a very different set of changes in fiscal policy, but they too argue the federal debt is not an urgent problem.

“Politicians and policymakers should focus on urgent social problems, not deficits,” two prominent liberal economists, Jason Furman and Lawrence H. Summers, wrote in a widely discussed piece published in the March/April issue of Foreign Affairs magazine. Both men were economic advisers to Mr. Obama.

Federal borrowing has expanded sharply. Most analysts prefer to measure the debt as a share of the nation’s economic output, because a wealthier nation can afford to borrow larger sums. By that measure, the federal debt has climbed from 31 percent of gross domestic product in 2001 to 76 percent of gross domestic product at the end of the third quarter of 2018, the most recent available data.

(Those numbers are not based on the $22 trillion figure, which includes money the government borrowed from itself. Instead, analysts generally focus on the amount borrowed from others, about $16.2 trillion.)

Economists have warned that government borrowing would limit private sector borrowing, which would constrain economic growth; that it would drive up inflation; and even that the government might find itself unable to borrow, if creditors presumed the United States was too deep in debt and might be unable to make interest payments or repay its liabilities in full.

Some continue to ring those bells. Michael A. Peterson, the president of the Peter G. Peterson Foundation, a leading advocacy group for debt reduction, noted the $22 trillion milestone with a statement that said the federal debt “threatens the economic future of every American.”

The government’s borrowing has real costs, notably the need to make interest payments to investors. Those payments now exceed $1 billion a day. But many experts have concluded that the gravity and immediacy of any threat to the broader economy was overstated. While federal borrowing puts upward pressure on interest rates, by increasing competition for available funds, larger forces have kept rates at low levels, including the eagerness of China and other nations to lend money to the United States.

Even as the debt climbed, interest payments as a share of G.D.P. declined.

Mr. Trump was among those who warned of dire consequences. In February 2015, he tweeted that if the debt topped $21 trillion, “Obama will have effectively bankrupted our country.” And the next year, in March 2016, Mr. Trump told The Washington Post he could eliminate the federal debt within eight years.

Mr. Kudlow said Thursday that the White House still expected its policies to cause such an increase in economic growth that annual federal deficits would decline, slowing the rise of the debt.

“That’s the key — economic growth and some budget restraint,” Mr. Kudlow said. “Growth, growth, growth, and limit spending. We are doing that, and we will do more of it.”

Mr. Kudlow said the administration planned to propose a “very tough spending budget” this year, including cuts of at least 5 percent in nondefense discretionary spending.

That category, which includes spending on infrastructure, medical research and law enforcement, totaled about $610 billion last year, so a 5 percent cut would amount to roughly $30 billion — a small fraction of the annual deficit, which is projected to approach $900 billion this fiscal year.

Also, discretionary spending already is low by historical standards — and Mr. Trump has said that he would like to spend more money on infrastructure, medical research and law enforcement.

Mr. Trump and congressional Republicans also have proposed additional tax cuts.

There are some warning signs. Borrowing costs increased as the Federal Reserve began removing some of its post-crisis economic support, including raising interest rates. The yield on the benchmark 10-year Treasury note, which reached a low of 1.375 percent in July 2016, has nearly doubled since then. On Thursday, the yield was 2.655 percent. The Congressional Budget Office projects interest payments will reach $383 billion this year and $460 billion in 2020.

The budget office also projects the debt will rise to 93 percent of economic output over the next decade, a level not seen since the 1950s.

And foreign investors, including foreign governments, are showing less appetite for lending money to the United States. The inflow of foreign funds is an important reason the federal government has been able to expand its borrowing without driving up interest rates or curtailing borrowing by the private sector. But the share of federal debt held by foreign investors has declined from 49 percent in 2008 to just 39 percent last year. Americans are instead providing a growing share of the money.

In January, a Treasury advisory committee made up of the Wall Street firms that help to sell federal debt warned that the trend could cause “a significant financing gap,” and it urged the Treasury to consider a variety of new kinds of bonds — which would make borrowing more expensive.

The rise of the debt also poses a more immediate problem. The total is expected to reach a statutory limit known as the “debt ceiling” later this year, requiring a congressional vote to raise the ceiling.