The upcoming presidential election portends massive consequences for economic policy, ranging from immigration to climate to trade. Yet one issue is not routinely underappreciated: the election’s impact on our national debt.
Americans should be concerned. Rising government debt means higher interest rates on car loans, credit card debt and mortgages. It means less available investment for growing companies and entrepreneurs, and a higher risk of a financial crisis, like the one that brought down the economy in 2008. And it potentially means fewer dollars to shore up shortfalls in Social Security and Medicare.
Unfortunately, our debt outlook is worsening. Debt as a share of the economy has been rising for decades but has been skyrocketing since the turn of the century. Sharp cuts in taxes on corporate profits and investment income, coupled with growing entitlement spending and periodic stimulus programs, have propelled the federal debt to roughly the same size as our economy. Without corrective action, it will get worse: the Congressional Budget Office (CBO) projects debt will exceed 150 percent of gross domestic product (GDP) over the next several decades.
It’s instructive to clarify each candidate’s record on debt. Under President Trump, public debt as a share of GDP increased steadily for three years but accelerated when the pandemic hit—ultimately increasing from about 75 percent to 98 percent over the course of his administration. Biden has fared better, with debt staying roughly constant at around 96 percent of GDP for the bulk of his time in office.
It would be unfair to pin the entire difference on each president’s policy agenda. Much of the run-up in debt under Trump was due to sweeping pandemic-era stimulus and a downturn in taxes during the 2020 recession. And President Biden’s debt record has benefitted slightly from elevated inflation, which tends to drive down debt as a share of GDP in the short run.
But it would also be unfair to excuse administration policy entirely. President Trump’s signature legislative achievement was a budget-busting $2 trillion tax cut, with a price tag that will grow to over $5 trillion if extended for another ten years. On the contrary, President Biden’s signature legislation—the Inflation Reduction Act— is projected to lower the debt by $238 billion over a decade.
If elections are about looking forward, debt hawks have some reason to be optimistic. The CBO scored both presidents’ most-recent budget as reducing the debt. According to CBO, Trump’s final budget would have lowered the debt by about 6 percent over a decade, while Biden’s last budget would push down the debt by slightly more—around 7 percent.
The candidates diverge sharply in their approach to debt reduction. Trump proposed roughly $600 billion in cuts to health, including cuts to doctors’ payments through the Medicare program. And although not specified in his final budget, the former president has signaled that would aim to extend the 2017 tax cut—which would more than evaporate any potential debt reduction.
Biden wants to take a different tack. Under his budget, federal spending on health programs would rise by $600 over the decade, while also directing another $100 billion to federal education programs. Biden’s budget would pay for this extra spending by raising tax rates on corporations and households making more than $400,000—lifting revenues by about $1.7 trillion over the decade.
The differences could have marked consequences for households’ financial situations, especially because Social Security and Medicare serve tens of millions of Americans across the country. But outside of these entitlements, the fundamental fiscal tradeoff has been articulated: Trump wants lower taxes on corporations and wealthy taxpayers, coupled with less health spending. Biden wants the opposite, also backing a plan that will lower the debt more than Trump. It’s up to you to choose which approach is better.
Ben Harris is vice president and director of Economic Studies at The Brookings Institution.