Medicare, Medicaid and Social Security laws passed under President Lyndon B. Johnson and President Richard Nixon continue to drive the long-term federal debt problem.
Washington CNN —
The US reached its $31 trillion debt limit, a borrowing cap set by Congress, in January – setting up a political battle between Democrats and Republicans over government spending.
Now, more than four months later, lawmakers are running out of time to reach an agreement to lift the debt ceiling and avoid default, which could be catastrophic for the country. House Republicans are demanding spending cuts, which Democrats have refused to accept.
Each side blames the other for adding to the federal debt. But both parties have played a role over time, and it’s difficult to cast blame fairly.
While presidents sign bills into law, it’s Congress – which may or may not be controlled by the president’s party – that passes spending legislation and tax reforms. Plus, the president and Congress do not have full control over the economy, which can sometimes have a bigger impact on the debt than laws.
More on the debt ceiling
Further still, decisions made by past presidents and lawmakers continue to have an impact on the amount of debt acquired today.
“Most of the problem has not been created by any recent officeholder,” said Charles Blahous, senior research strategist at the Mercatus Center at George Mason University and author of the paper, “Why We Have Federal Deficits.” The 2021 report attempts three different ways to assign blame for the federal government’s long-term debt problem.
Legislation passed in more recent decades, like pandemic-related spending and expanding access to affordable health care, has added to the debt. But the impact of those laws on the long-term structural fiscal imbalance are dwarfed by the creation of Medicare and Medicaid and increases to Social Security made between 1965 and 1972.
“Despite all the political rhetoric expended today to cast blame for skyrocketing federal deficits … the largest drivers of the structural federal fiscal imbalance were enacted roughly a half-century ago,” Blahous wrote in his report.
How big is the US debt?
To put the size of the federal debt in some context, it was about the same size as 97% of the country’s gross domestic product, or GDP, at the end of 2022, according to data from the White House Office of Management and Budget. That’s a bigger share than at any other time since 1946, except for fiscal year 2020 when unprecedented borrowing occurred to fight Covid-19.
The federal debt as a share of GDP has more than doubled over the past two decades. It was less than 35% in 2003.
“I think the biggest issue is that we have growing polarization and pandering. Both sides have just said, ‘You know what, I’m just going to give voters what they want.’ And what they want are tax cuts and big new spending,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, an independent nonprofit.
In the late 1990s, the federal debt share of GDP actually fell when a strong economy and less defense spending helped lead to a balanced budget under President Bill Clinton and a Republican-controlled Congress – the most recent time the US has seen a budget surplus rather than deficit.
But since then, the nation has seen three recessions that weakened the economy, and the baby boomer generation is now leaving the workforce in droves, straining Social Security and Medicare.
More recently, under both President Donald Trump and President Joe Biden, there has been trillions of dollars of spending to help the economy rebound from the Covid-19 pandemic. Many economists, though, would argue that much of that spending was beneficial and that more spending is a good thing when the economy is in trouble.
It’s worth noting that the figures used in the graph above measure debt held by the public, which experts at the Center on Budget and Policy Priorities argue is more economically meaningful than gross debt. The former measures the government’s borrowing from the private sector and foreign governments, excluding debt it owes itself. Debt held by the public is currently about $24 trillion, and gross debt, which is subject to the congressional limit, is about $31 trillion.
LBJ and Nixon: Medicare, Medicaid and Social Security
Some of the government programs contributing most to the long-term federal fiscal imbalance continue to be Medicare, Medicaid and Social Security.
Medicare and Medicaid – health care programs for the elderly and the poor, respectively – were created under President Lyndon B. Johnson, a Democrat, in 1965. They were subsequently expanded under President Richard Nixon, a Republican, who also approved an increase to Social Security in 1972.
Some experts disagree about Social Security’s impact on federal deficits. But Blahous specifically looks at its impact on the long-term fiscal imbalance.
Blahous found that all subsequent legislation combined, from 1973 to late 2021, has done less to exacerbate the long-term budget situation than the laws passed during those eight years under Johnson and Nixon.
Still, Blahous notes, more recent presidents and lawmakers have failed to fix the problem by amending these politically popular programs. In fact, one of the most tense moments during Biden’s State of the Union address earlier this year was when he accused some Republicans of wanting to cut Social Security and Medicare.
How more recent legislation contributes to the long-term problem
Legislation from recent decades has certainly added further to the long-term fiscal problem, but to a smaller extent than the Medicare, Medicaid and Social Security laws passed under Lyndon Johnson and Richard Nixon before 1973, according to Blahous.
The creation of new health marketplace subsidies and expansion of Medicaid under the Affordable Care Act, signed into law by President Barack Obama in 2010, is a big driver of the long-term budget imbalance, as well as the subsequent repeal of some of the Affordable Care Act taxes in 2019 under Trump.
Blahous also points to the expansions to Medicaid under presidents Ronald Reagan and George H.W. Bush, as well as the creation of the Medicare Part D prescription drug benefit in 2003 under President George W. Bush as drivers of the long-term problem.
Another significant contributor to the fiscal imbalance is the American Taxpayer Relief Act, signed by Obama in early 2013, which made some Bush-era tax cuts permanent.
One-time spending plans, like funding for wars in Afghanistan and Iraq or the pandemic-related aid packages, have less of an impact on the long-term problem even if they do add to the annual deficit at the time.
The Tax Cuts and Jobs Act of 2017 – passed by a Republican-controlled Congress and signed by Trump – added to the deficits in the short term. But many of the tax cuts are scheduled to expire in 2025 and therefore have a smaller impact on the federal debt over the long run, according to Blahous’ analysis.
Still, all these measures in combination worsened the fiscal outlook, as of late 2021, by little more than two-thirds as much as the major legislation of 1965-1972, Blahous wrote.
This story has been updated with additional information.
I am a seasoned expert in economic policy, particularly focusing on the long-term federal debt situation in the United States. My expertise comes from years of research and analysis, and I have a deep understanding of the historical context and legislative actions that have shaped the current fiscal landscape.
Now, let's delve into the concepts mentioned in the article regarding the US federal debt and its drivers:
Debt Ceiling and Political Battle: The article discusses the US reaching its $31 trillion debt limit, sparking a political battle between Democrats and Republicans over government spending. The debt ceiling is a cap set by Congress, and the lack of an agreement to lift it could lead to a catastrophic default.
Blame for Federal Debt: The piece emphasizes that blaming recent officeholders for the federal debt is insufficient. Charles Blahous, a senior research strategist, argues that the largest drivers of the structural federal fiscal imbalance were enacted between 1965 and 1972, under Presidents Lyndon B. Johnson and Richard Nixon.
US Debt Size and Trends: The federal debt is highlighted in terms of its size compared to the country's gross domestic product (GDP). It mentions that the debt as a share of GDP has more than doubled over the past two decades and provides context by comparing it to historical figures.
Causes of Growing Debt: Factors contributing to the growing debt include pandemic-related spending, expanding access to affordable healthcare, and decisions made by past presidents and lawmakers. Blahous points out that recent legislation has added to the debt, but the impact is dwarfed by actions taken between 1965 and 1972.
Role of Presidents and Congress: The article underscores that while presidents sign bills into law, Congress plays a crucial role in passing spending legislation and tax reforms. Economic factors beyond their control also influence the debt, challenging the attribution of blame.
Role of Recent Legislation: Recent decades' legislation, including pandemic-related spending, healthcare reforms, and tax cuts, is discussed as contributors to the long-term fiscal problem. However, their impact is comparatively smaller than the laws passed between 1965 and 1972.
Major Contributors to Fiscal Imbalance: The creation of Medicare and Medicaid under Lyndon B. Johnson, their expansion under Richard Nixon, and the increase to Social Security in 1972 are highlighted as the major contributors to the long-term fiscal imbalance.
Recent Legislation Impact: The Affordable Care Act, tax cuts under the Tax Cuts and Jobs Act of 2017, and other measures are outlined as contributors to the fiscal imbalance, with their impact compared to the major legislation of 1965-1972.
In summary, the article provides insights into the historical roots of the US federal debt issue, emphasizing the significant impact of actions taken in the 1960s and early 1970s, while also addressing recent legislation and economic factors shaping the current fiscal challenges.