When President-elect Joe Biden takes office in January, he will face the most considerable amount of federal debt in the country’s history.
The people he has nominated to advise on fiscal policy will be prepared to prioritize rescuing the economy from the pandemic rather than lowering or stabilizing the debt.
“We need our workers to be back on the job by getting the virus under control. … And that requires sparing no effort to fight COVID so that we can open our businesses safely, resume our lives, and put this pandemic behind us,” Biden said on Nov. 16.
Still, the government’s debt is rising.
According to the Treasury Department, the federal government holds over $27 trillion in debt as of Nov. 30.
The two positions most responsible for addressing the debt are the secretary of the Treasury Department and the director of the Office of Management and Budget.
Biden has nominated former Federal Reserve Chairwoman Janet Yellen to become the next Treasury secretary. Also, Biden chose former Democratic campaign adviser Neera Tanden, who also served in the Obama administration, to head the OMB. The Senate must approve both of these nominees before they can assume their respective posts.
If they are approved, both have signaled through public comments that, like Biden, tackling the massive debt will not be their top priority.
Of the two, Yellen is closer to being a budget hawk, but her view on the debt has changed over the years.
Back in February, before the pandemic wreaked havoc on the economy, the former Fed chairwoman said that the United States’s “debt path is completely unsustainable under current tax and spending plans” at an event sponsored by the World Bank.
In 2017, Yellen told a Senate panel that the debt level is “the type of thing that should keep people awake at night.”
When she uttered this sentence, the national debt was roughly $20.6 trillion, according to the Treasury Department.
However, shortly before she was nominated for the Treasury Secretary position, she told Bloomberg TV that “we need to continue extraordinary fiscal support” because of the pandemic. In other words, she favors adding to the debt in the short term to prevent economic disaster.
Tanden has expressed little concern with reducing the debt throughout her career.
In March, she was part of a group op-ed titled “Deficit and Debt Shouldn’t Factor Into Coronavirus Recession Response.” The piece’s thrust was that the federal response to the coronavirus should take priority over tackling the debt.
“Deficits and debt pose no comparable risk [to the economy as the pandemic]. Policymakers should set aside their concerns about red ink and deliver the response the crisis demands,” Tanden wrote.
Before the pandemic, she essentially held the same position that curbing the debt should play second fiddle to providing relief to people in need, according to her comments before the Senate Foreign Relations Committee in a 2016 hearing on the debt.
“Today, we’re failing to fulfill that promise for too many American families. While our national debt is a long-term problem that we can and should tackle, the struggles of our middle class and those trying to get into it is an urgent problem and, I believe, the proper concern of this committee and Congress,” she said.
At the time, the national debt was barely over $19 trillion, according to the Treasury Department.
Since then, the public’s federal debt has snowballed and is expected to eclipse gross domestic product in 2021, according to the Congressional Budget Office. That means the national debt will be greater than the total monetary or market value of all the finished goods and services produced within the U.S. next year.
And it only gets worse. According to the CBO, the federal debt will be 107% of GDP in 2023 and 190% of GDP in 2030.
While curbing the debt might not be a top priority for the Biden administration, it is for voters, according to recent polling from the Peter G. Peterson Foundation. This nonpartisan organization focuses on addressing the nation’s fiscal challenges.
It’s polling found that 77% of voters say their concern about the national debt has increased in the past few years and that the president and Congress should spend more time addressing the issue.
“While defeating the pandemic and restoring our economy remain our pressing priorities, Americans are also calling for their leaders to address our unsustainable and dangerous fiscal outlook,” said Michael Peterson, the organization’s CEO, when releasing the poll.
Nearly two-thirds, 63%, of respondents in the poll said that the U.S. is on the “wrong track” when tackling the debt.
Joel Griffith, a research fellow at the Heritage Foundation, a right-leaning think tank, warned that now is the time to address the debt as it surpasses the country’s economic output.
“Waiting until the signals are unmistakable will result in severe economic pain,” he said via email.
He pointed out that countries such as Greece, Spain, Italy, and Portugal have wrestled with debt problems because they attempted to address the issue after it was out of control.
He also noted that Fitch Ratings last summer downgraded the U.S. federal debt outlook from “stable” to “negative.”
“This is certainly a strong signal that the rapid growth of the national debt is unsustainable,” Griffith said.
Fitch Ratings also expects that the federal debt exceeds 130% of GDP by 2021, which is much higher than the projection from the CBO.
Griffith said that stabilizing the debt will include tax increases.
“The bottom line: We will pay for this through the visible burden of direct taxation, the hidden tax of inflation, higher borrowing costs, or some combination of the three,” he said.
