America should discuss its uncertain fiscal future

One of the most important issues facing the country was conspicuously absent from the U.S. presidential election — and only briefly mentioned during Tuesday night’s debate. Kamala Harris and Donald Trump appear to agree that unsustainable national debt is not their concern. In fact, both propose making the problem worse.

Trump’s fiscal plans, if you can call them that, are certainly more reckless than Harris’s. But both promise tax cuts and spending increases that will deepen projected budget deficits and push the national debt’s upward trajectory even higher. That literally cannot continue. If Washington refuses to change course, financial markets will eventually force its hand, and the crisis that will ensue will be brutal.

As it stands, the budget deficit is set to remain around 6% of gross domestic product over the next decade—enough to raise net national debt from just under 100% of GDP today to over 120% by 2034. Keep in mind that this assumes low unemployment, steady growth for a decade, and interest rates that won’t rise because buyers of government debt will panic. It also assumes that most of the 2017 tax cuts will expire as scheduled at the end of next year—something Harris and Trump have promised won’t happen, without saying how they’ll make up the difference. In other words, the most likely “baseline” for current policy is already awful.

But both candidates are clearly promising to make things worse. While their plans are so vague that it’s impossible to calculate the exact costs, the numbers from the Penn Wharton Budget Model give a sense of what’s coming—and it’s alarming.

Trump’s most transparent proposals (extending the Tax Cuts and Jobs Act, lowering the corporate tax rate from 21% to 15%, and eliminating taxes on Social Security benefits) would cost about $6 trillion over 10 years, adding another 10% to the medium-term debt trajectory. He has also proposed a blanket import tariff of 10% or more, which he says could pay for additional tax cuts. Even if tariff revenues were not used for this purpose, they would not be enough to bring deficits under control. The more tariffs reduce imports, the less revenue they generate—not to mention the broader damage they would do to the economy. If America’s trading partners retaliated, leading to a full-blown trade war, the economic fallout would be massive.

By those standards, Harris’ fiscal plans almost seem sensible—but the fact is, they don’t. The plans she’s announced so far (increasing the child tax credit to $3,000, with $3,600 for children under 5 and $6,000 for newborns; giving first-time homebuyers $25,000 down payment assistance; raising the corporate tax rate from 21% to 28%) would add another $1 trillion to the deficit over the next decade. The likely fiscal cost would be twice as much, if you factor in the impact of higher corporate taxes on investment and thus growth.

Of course, the personal tax reforms that Harris supports are good policy in their own right: Experience from the pandemic shows that providing more aid to low-income families significantly reduces child poverty. But good policy comes at a price. Taken as a whole, promises that contribute to an already unattainable outlook for public borrowing are simply irresponsible.

Each additional delay in solving the problem makes it harder to stabilize the fiscal outlook. And the harder it gets, the more likely financial markets will start to ask whether the government is still creditworthy. Public debt isn’t a problem until it suddenly isn’t—and then it’s too late.