The national debt crossed a perilous threshold on Tuesday—the $16 trillion mark that makes it roughly equal in size to the entire annual gross domestic product of the United States.
Republicans looking to score points against President Obama expressed the obligatory outrage without acknowledging that red ink will spill across the government’s balance sheets regardless of who wins the election. No one has a plan to immediately return the country to fiscal solvency—and if they did it would have jarring repercussions for a fragile recovery.
GOP Vice presidential nominee Paul Ryan ripped into Obama on Tuesday for pledging to halve the budget deficit over the course of four years, a policy that was quickly scrapped as Obama tried to revive the economy in part with deficits that will have surpassed $1 trillion in each year of his presidency thus far.
“This is a serious threat to our economy,” Ryan said at a campaign stop in Iowa. “Of all the broken promises from President Obama, this is probably the worst one because this debt is threatening jobs today, it is threatening prosperity today and it is guaranteeing that our children and grandchildren get a diminished future.”
The deficits have buoyed an economy punished by the bust of the housing sector toward the end of George W. Bush’s presidency, which rippled across cul-de-sacs and Wall Street trading floors alike to leave a recovery that has limped along ever since. But at some point, if gone unchecked, the debt load will overwhelm the finances of the government. For now, the markets have patiently accepted the spending and held interest rates on Treasury bonds near historic lows, making it cheap to borrow.
To demonstrate his solemnity, Ryan drew a parallel between the ongoing Democratic convention and the Republican festivities that ended last week. “We had a debt clock at the convention last week,” he said. “I don’t see the debt clock at the convention this week.”
Even if Ryan is using the clock to sound the alarm, the policies from both parties are hitting the snooze button on the debt. Over the past 50 years, the country has been in surplus just five times, according to the Office of Management and Budget. In the 50 years before that—which included the Great Depression, World War I, and World War II—lawmakers managed a budget surplus 21 times.
The Treasury Department announced Tuesday that the critical GDP milestone had been crossed on the last day of August. Of the outstanding debt, the public holds a chunk equal in size to more than 70 percent of GDP, with the rest being intragovernmental.
The 2013 Obama budget would essentially bend the curve on the growth of publicly held debt, which would peak at 80.4 percent of GDP in 2014 and then ease down to 76.3 percent through 2022, according to projections by the Congressional Budget Office.
Obama talks about closing the deficit, not balancing the budget. The “balanced” part only applies to mixing the necessary spending cuts with a tax increase on American families earning more than $250,000.
“We’re going to have to close the deficit, and the question is: Are we going to do it Mr. Romney’s way?” he said in an August speech in Colorado. “Or are we going to do it in a balanced way that says, yes, we cut spending we don’t need, but we also ask everybody to do their fair share?”
The first glimmer of a surplus under the proposal introduced by Ryan, chairman of the House Budget Committee, would happen around 2040, about seven years after the Social Security trust fund is projected to become insolvent.
Republican presidential nominee Mitt Romney has suggested the budget can be balanced before 2020, although his campaign has yet to explains how that would be achieved advisers have started to downplay that goal.
Romney intends to lop income tax rates by 20 percent across the board and strengthen military spending, essentially implying that the supply-side strategy will generate enough economic growth to increase total tax revenues. A similar type of approach produced a comparatively robust economy under Ronald Reagan, but the deficits continued to mount.
In his convention speech, Romney mentioned the word “deficit” three times—two of which were attacks on Obama. His entire explanation on how he would do that? One line and—in contrast to his campaign economic plan—it does not commit to a balanced budget, only the path toward one.
“To assure every entrepreneur and every job creator that their investments in America will not vanish as have those in Greece,” Romney said, “we will cut the deficit and put America on track to a balanced budget.”