The U.S. budget deficit for fiscal 2021 totaled more than $2 trillion dollars at the end of May and the president of the Committee for a Responsible Federal Budget, Maya MacGuineas, said the growing national debt threatens every American.
The national debt now totals $28.2 trillion and will hit a record 110% of GDP at the end of fiscal 2021, according to the committee. "We are in fact on the verge of setting a record in this country where our debt to GDP will be the highest it's ever been. The last time that it was this high was right after World War II when we'd fought a World War," MacGuineas told Yahoo Finance Live.
Foreign governments hold more than $7 trillion of that debt which costs U.S. taxpayers billions of dollars each year in interest. So far, taxpayers have spent $319 billion to cover interest payments this year on the debt. In fiscal 2020 those payments totaled $522.8 billion. To put that into perspective, the U.S. spent $458 billion on Medicaid in fiscal 2020.
"We on the other hand, borrow so much from abroad and that means that those interest payments, leave our economy, that's one of the ways that our standard of living fails to grow as much as it otherwise would," said MacGuineas, noting that "our standard of living is lower than it otherwise would have been."
'No economic justification'
MacGuineas said the federal government did the right thing borrowing trillions of dollars to fund COVID-19 pandemic relief programs. "But the three years, for instance, running up to [the pandemic] we borrowed almost $5 trillion when the economy was strong. There was no economic justification for that borrowing," said MacGuineas, adding that politicians refuse to make hard budgetary decisions. "No one wants to pay for things," she said.
President Joe Biden's proposed 2022 federal budget would make some of the COVID-19 pandemic era government spending permanent. It would increase government expenditures to $6 trillion dollars over 10 years. But Biden is proposing ways to pay for his budget like raising the corporate tax rate from 21% to 28%, something Republicans on Capitol Hill fiercely oppose.
"You've got to take all this emergency spending and take it out of the regular budget," Representative Kevin Brady (R-Tex.) recently told Yahoo Finance. He was one of the architects of the historic Tax Cut and Jobs Act of 2017. "If you leave it in there, we will see a financial crisis at some point in the future."
"We need to wait, find a way to pay for these things," MacGuineas said. "The good news is the Biden administration has said, they do want to pay for all this, they're not making kind of a magical theory case that you can just borrow all you want, [and not] worry about it."
But she cautioned, "Our debt is projected to grow faster than our economy every year forever. And that's basically the definition of unsustainable right there."
Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm. Follow him on Twitter @Ajshaps