the plan’s deficit spending is FISCALLY IRRESPONSIBLE GOVERNMENT TYRANNY and leads to MORE TAXATION!

After two decades of uninterrupted borrowing – including three years in which deficits surpassed 10 percent of the economy – the U.S. national debt is higher as a share of Gross Domestic Product (GDP) than at any time since World War II and is on course to breach that record. Yet policymakers have done little to contain our $24 trillion national debt, and most legislation has added to it in recent years. Additionally, there have been numerous claims that “debt doesn’t matter” and the United States should borrow even more than the $16 trillion it is projected to borrow over the coming decade. These claims are problematic and concerning. This does not mean there is no proper time to borrow. In fact, deficit spending helped to prevent an economic catastrophe and support the country through a pandemic in the recent COVID-19 crisis. However, even this justified borrowing comes with some consequence, and much of the recent borrowing before and since the COVID crisis was enacted for political rather than purely economic justification. Excessively high debt levels are damaging for many reasons. High debt levels: Threaten economic vitality: The recent surge in deficit spending has contributed to rapid near-term inflation and over time will result in higher interest rates, slower economic and income growth, and a small but increased risk of fiscal crisis. Place a strain on the budget: The federal government currently spends as much on interest payments as it does on most of our safety net programs combined, and interest is projected to become the largest government expenditure within the next 30 years. As interest and mandatory spending dominate a greater share of the budget, our government’s ability to invest in new priorities will be limited. Create geopolitical challenges and risks: With large portions of our debt held by foreign investors, a substantial share of our national income goes abroad. We are consequentially left with fewer financial tools to manage conflicts with other countries when they have increased leverage over our economy. Make responding to new emergencies more challenging: High deficits and debt – particularly if coupled with high inflation or interest rates – make it harder to borrow in response to a recession, pandemic, war, or other legitimate emergency. Are unfair to younger and future generations: The federal budget already favors consumption on seniors over investment in children. Failing to address rising debt also leaves future generations with an additional fiscal and economic burden. Given these very real threats and risks, policymakers should pursue the appropriate tax and spending adjustments to bring the fiscal situation under control. The Economic Consequences of Deficits and Debt High and rising debt creates near-term and long-term economic consequences, some of which are playing out in real time through high inflation. In response to the COVID-19 pandemic and economic crisis, policymakers injected more than $5 trillion of fiscal support into the economy. Deficits ballooned from just under $1 trillion in 2019 to an average of $3 trillion per year over the subsequent two years. Much of this borrowing was important for supporting households, securing balance sheets, limiting the depth of the recession, and supporting the economic recovery. However, the total magnitude of fiscal support – particularly support enacted in 2021 – greatly exceeded the needs or capacity of the economy.1 The resulting excess demand has contributed to inflation. The Federal Reserve normally aims for 2 percent inflation as measured by the Personal Consumption Expenditure (PCE) index, the equivalent of roughly 2.3 percent in the Consumer Price Index (CPI). Over the past year, the PCE index has risen by 6.3 percent; economists have attributed 2 to 4 percentage points of this rate to the $1.9 trillion American Rescue Plan alone.2 CPI inflation has totaled 8.6 percent, the highest in four decades. In response to rising inflation, the Federal Reserve has begun aggressively raising the federal funds interest rate, which reverberates throughout the economy. Similarly, investors generally respond to higher levels of debt issuance by demanding higher rates on Treasury bonds. Box 1: Modern Monetary Theory and the National Debt Over the past few years, Modern Monetary Theory (MMT) – a fringe economic theory that argues the government can, should, and effectively does print money to finance deficits – has gained growing prominence. The basic idea behind MMT is that fiscal policy, rather than monetary policy, should manage the macroeconomy and that there is no reason to worry about debt sustainability. Instead, the theory states, deficit spending should continue until the point that the economy is at capacity and substantial inflation emerges. While MMT is appealing as a political excuse to brush aside the tradeoffs involved in budgeting, it makes little sense either in theory or in practice.3 On the theoretical side, MMT rightly recognizes that economies that borrow and print in their own currency can never be forced into default, but it misunderstands the relationship between borrowing, interest rates, demand, investment, and economic growth. For example, some MMT advocates have theorized that higher interest rates could boost demand for goods and services rather than crowd out investment.4 On the practical side, MMT implicitly relies on Congress and the President to substantially raise taxes or cut spending – without help from the Federal Reserve – in order to fight bouts of inflation. There is little evidence of willingness to enact large abrupt tax increases or spending cuts in periods of high inflation.5 In fact, advocates of MMT have offered virtually no fiscal solutions to recent inflation, and in many cases, they have suggested further fiscal expansions.6 MMT has widely been panned by economists on the left and right, ranging from Paul Krugman to John Cochrane.7 Its proponents often articulate a contradictory framework that doesn’t withstand even the most basic scrutiny.8 While MMT does help explain some basic insights about the constraints of an economy’s productive capacity and the technical ability of a government to borrow, it is of little use in understanding how to analyze or manage an economy or government budget.