By Kevin McNabola
Orange Board of Finance
Kevin McNabola
A bipartisan bill was recently introduced within the US Senate by Utah Sen. Mitt Romney and West Virginia Sen. Joe Manchin. The Fiscal Stability Act would establish a statutory debt commission whose main objective would be to find legislative solutions to stabilize and decrease the national debt, which now exceeds $33.6 trillion.
This endeavor is long overdue and is necessary so that the next generation of Americans aren’t left paying the price for decades of inaction by the US House and Senate. The US Congress needs to take immediate action on our national debt within the coming months in order to avoid future government shutdowns which would ultimately send shockwaves throughout global financial markets and potentially cause a significant recession within the US.
The path forward is not easy. However, it is achievable by limiting future spending and borrowing, which would promote economic growth and reduce inflation. The last time the US had a balanced budget was under President Bill Clinton in 1998 with the successful passage of the Balanced Budget Act of 1997.
So how did the US get to a $33.6 trillion national debt? The reality is bad policies and massive overspending during the past two decades by both Republicans and Democrats has led to a national debt that is up $1.3 trillion in 2023 and up $8 trillion dollars just within the last three years, largely driven by government spending in response to the COVID-19 pandemic.
Unlike during the 2008 financial crisis, tax revenue increased during COVID, bolstered by a strong stock market. However, big expenditure increases have not only come from spending to combat COVID-19 and the wars in Afghanistan and Iraq within the past two decades, but also covering the rising medical costs of an aging population. Last year, to make matters worse, the federal government put forward a $1.7 trillion omnibus spending package, which only fueled the fire for continued inflation.
When federal government spending exceeds revenue, creating a budget deficit, the US covers the gap by selling securities, such as Treasury bonds. The national debt is the accumulation of all past deficits and the interest owed on the resulting debt. Measuring the debt as a share of gross domestic product allows for comparing the level of debt over time relative to the size of the US economy and for comparisons with other countries’ debt-to-GDP ratios.
The Fiscal Stability Act will aim to propose legislation “to improve the long-term fiscal condition of the federal government, stabilize the ratio of public debt to GDP within a 15-year period, and improve solvency of federal trust funds over a 75-year period.”
There is even a plan to allow the federal government to borrow money and invest it in the stock market and use the returns to fund Social Security. It is, however, going to be a tall order for the commission to address the spending within the federal budget, which is largely made up of mandatory entitlements. Close to 46 percent of the budget consists of Social Security, Medicare and Medicaid. The Social Security figure is expected to grow to 24 percent of the budget by 2028 as an aging population pushes up the costs of Social Security and Medicare.
Only about one third of federal spending labeled as discretionary, which includes defense spending and requires congressional approval through annual appropriations bills. The Congressional Budget Office is also projecting that net interest on debt payments will account for 13 percent of spending by 2028, up from 10 percent in 2023.
I applaud the move for a bipartisan solution within the Senate to address our longstanding national debt crisis. However, the Senate and House need to get serious about putting the fiscal house of the US in order and addressing the current unsustainable path of our national debt. It is imperative that Congress act now so that global economies are not adversely impacted by our national debt. If the Senate and House cannot come together to stabilize this looming crisis, they would be essentially failing the American people and harming the well-being of our future generations.
Kevin McNabola is the chief financial officer for the city of Meriden and a member of the Orange Board of Finance.