National Debt Tops $30 Trillion for the First Time

By Yuval Rosenberg

Welcome to February! Tom Brady made his
retirement official today at age 44 and with seven Super Bowl
championships to his name. He’s the GOAT — and is it us, or did his
two years in Tampa Bay somehow make him less detestable?

Now down to business — and a big new fiscal milestone
that's much harder to celebrate.

US National Debt Tops $30 Trillion for the First Time

America’s national debt has surpassed $30 trillion for the first
time, according to Treasury Department data published Tuesday.

The milestone comes as debt has surged more rapidly than
projected in recent years, driven in large part by a
deficit-financed federal response to the coronavirus pandemic.
Total public debt outstanding — $30,012,386,059,238.29 as of Monday
— has risen by nearly $7 trillion since the start of 2020, and the
debt as a share of the economy topped 100% in 2020, reaching levels
higher than any time since World War II. The gross national debt
includes $6.5 trillion the government owes to itself, called
intragovernmental holdings, and $23.5 trillion owed to outside
creditors, known as debt held by the public.

Yet even before the government spent some $5 trillion to support
the economy and combat the novel coronavirus, some budget watchers
were warning that the nation’s fiscal path was unsustainable,
primarily as a result of demographic trends and structural
imbalances between the tax revenue the government takes in and
long-term federal obligations for programs including Medicare and
Social Security.

“We're on an unsustainable path," Federal Reserve Chair Jerome
Powell told Congress last month. "Debt is not at an unsustainable
level, but the path is unsustainable — meaning it's growing faster
than the economy, meaningfully faster than the economy. We have to
address that over time. We will address it over time. And the
better way to do it is soon.”

Other economists say that that the debt load is manageable and
that new spending is affordable given that the economy continues to
grow, interest rates remain at historically low levels, interest
payments as a share of the economy are well below past levels and
investors continue to demonstrate strong demand for U.S. bonds,
suggesting that there’s little risk of an imminent fiscal crisis.
“And some economists argue that a more recent economic phenomenon —
inflation — may have a silver lining in that it could chip away at
the nation’s debt burden,” Alan Rappeport of The New York Times

says.

Harvard Economist Kenneth Rogoff tells the Times that other
economic issues are more pressing than the debt. “You would rather
have no debt, of course,” Rogoff says. “But compared to other
issues at the moment that’s not the principal problem.”

A rising rate environment: “It's impossible to know how
much debt is too much, and economists remain divided over how big
of a problem this really is,” CNN’s Matt Egan
writes. “But the latest debt milestone comes at a
delicate time as borrowing costs are expected to rise.”

The Federal Reserve has signaled that it is prepared to begin
raising interest rates as soon as next month as it looks to curb
inflation. “With inflation well above 2% and a strong labor market,
the Committee expects it will soon be appropriate to raise the
target range for the federal funds rate,” the Fed said in a
statement last week after a meeting of its policy-setting
committee.

Higher rates will increase the government’s borrowing costs,
making it more expensive to carry the unprecedented debt load. “A
larger amount of debt makes the United States’ fiscal position more
vulnerable to an increase in interest rates,” the Congressional
Budget Office has warned.

CBO projected last year that the federal government’s interest
costs would become the fastest-growing part of the federal budget
and top $5.4 trillion from 2022 through 2031. By the end of that
period, interest costs would represent 12% of the federal budget —
and the share would continue to rise, climbing to nearly half of
all federal revenue by 2051.

Concerns about the debt could limit lawmakers’ ability or
willingness to spend money on other national needs. Already, Sen.
Joe Manchin (D-WV) has cited the debt in objecting to Democrats’ $2
trillion Build Back Better plan of domestic spending and
environmental programs.

“The polarization of our government and, to some extent, our
population, makes implementing solutions more difficult,” Michael
A. Peterson, CEO of the Peter G. Peterson Foundation, which
promotes deficit reduction, told CNN. “If we don't get our fiscal
house in order, all these other concerns like climate, inequality
and national security will be made more difficult.” (The Fiscal
Times in an editorially independent organization financed by
Peterson.)

Manchin Says Build Back Better Is ‘Dead’ as Dems Eye Smaller
Bill

At least some Democratic leaders seem pretty confident that Sen.
Joe Manchin will come around on the Build Back Better bill, the
roughly $2 trillion spending package constituting much of President
Joe Biden’s domestic agenda that the West Virginia Democrat has
single-handedly stopped in its tracks.

On Monday, Commerce Secretary Gina Raimondo said that she thinks
Manchin is “gettable” on a revised version of the bill. “I think we
will get him. I think this is going to happen,” Raimondo told
Politico.

Speaking to reporters Tuesday, Sen. Ron Wyden (D-OR) said he was
confident that Democrats would reach an agreement on a modified
version of the bill, and even referred to Manchin by name as he
discussed how certain he was that the bill would eventually come
together.

Manchin, however, appears to have a different take on the
matter. Asked about a specific provision of the bill Tuesday,
Manchin did not sound like someone on the verge of making a deal.
“What Build Back Better bill?” he said. “There is no … I
mean, I don’t know what y’all are talking about.”

Asked if he was currently involved in negotiations on the bill,
Manchin made it clear that he was not. “No, no, no, no,” he said.
“It’s dead.”

Later Tuesday, Manchin provided some clarification that may open
the door to a deal just a crack. Asked if he really meant that the
bill is “dead,” he said, “If we’re talking about the whole big
package, that’s gone.” But when asked about a possibly smaller
bill, he offered a still-negative but not absolute response: “We’ll
see what people come up with. I don’t know.”

List of concerns grows: Manchin has had numerous
complaints about the version of the Build Back Better bill passed
by the House, including what he saw as an excessively generous
child tax credit, the potential for the spending package to
increase inflationary pressure and its potentially negative effect
on the national debt.

In comments Tuesday, Manchin reiterated his list of concerns.
"My main concern is inflation. The high costs to everyone in my
state and around the country I hear from," he said. "And also the
geopolitical unrest we have in Ukraine. That's going to be a big
cost, some sooner than later. And on top of that: Covid. We have to
see which way Covid goes, and what effect it’s going to have on our
economy. Those are still the driving forces."

The bottom line: With the White House focused on
nominating the next Supreme Court justice and lawmakers soon to be
consumed by the February 18 deadline for a 2022 spending deal, the
path to an agreement on a modified version of Build Back Better
isn’t getting any easier. Manchin’s list of concerns remains long,
as is the list of potential distractions in Washington.

Paycheck Protection Program Helped Business Owners More Than
Workers: Report

The $800 billion Paycheck Protection Program was created by
Congress with the goal of paying businesses to keep workers in
their jobs during the coronavirus pandemic. According to new
research
highlighted by The New York Times Tuesday, only
about one-fourth of the money went toward wages that would have
otherwise been lost, with the rest ending up in the pockets of
business owners.

“Jobs and businesses are two separate things,” Massachusetts
Institute of Technology economist David Autor, who led the study of the
program, told the Times. “We tried to figure out, ‘Where
did the money go?’ — and it turns out it didn’t primarily go to
workers who would have lost jobs. It went to business owners and
their shareholders and their creditors.”

According to the analysis, the PPP ended up being markedly
regressive despite reaching more than 90% of all small businesses,
with more than 70% of the relief money flowing into households in
the top 20% of the income distribution. Each job retained through
the program cost between $170,000 and $257,000 per year. “This
compares unfavorably to the other two major pandemic aid programs,
enhanced UI benefits and Economic Impact Payments (i.e. stimulus
checks),” the report says.

Why did the program cost so much to do so little? The
researchers offer an explanation that focuses on the weakness of
the U.S. government as an organization. “PPP’s breakneck scale-up,
its high cost per job saved, and its regressive incidence have a
common origin: PPP was essentially untargeted because the United
States lacked the administrative infrastructure to do
otherwise.”

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