National debt: Why Congress needs to get serious

Rep. Kevin McCarthy (R-Ca.) has been ousted from his role as Speaker of the House. This came as House Republicans wanted less government spending and to reduce the national debt, which McCarthy ignored in his deal to avert a government shutdown.

With a deal passed and McCarthy gone, the question now becomes how to deal with the root of the problem. Yahoo Finance Senior Columnist Rick Newman joins the Live show to break down the competency of both parties in tackling the national debt.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

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BRAD SMITH: Welcome back. You're watching Yahoo Finance Live. We are at the NASDAQ market site this morning. Kevin McCarthy is out, though, as Speaker of the House thanks to a historic vote that saw eight members of his own party side with House Democrats to oust him. But what is this all about anyway? Hard line Republicans, including Representative Matt Gaetz who led the drive to oust McCarthy, say that they want spending cutbacks and less government debt. Do they have a point? With more on what he's keeping on his radar we're joined by Rick Newman. So do they have a point. Rick?

RICK NEWMAN: They do have a point, but nobody is serious about what to do about this problem. So just to provide the context here, the US-- the total US public debt is now $33 trillion, and that is up from $23 trillion just three years ago. So we've added $10 trillion in debt. There you can see the depressing chart.

We've added $10 trillion in debt just in three years. Most of that is-- was COVID stimulus spending. You know, economists say that was generally the right thing to do. We've had a really strong recovery from COVID in the United States. But nobody is talking about what to do about that debt.

So you know, Matt Gaetz, when he was fulminating in the House yesterday, he went on and on about how Congress just spends money with reckless abandon and so on. But look, he is not pinpointing the way that you actually solve the problem. I mean, you've got Republicans basically saying, let's cut arts funding and these little itty bitty programs that really account for a tiny portion of the budget.

The way you have to tackle this problem is you have to figure out what to do about Medicare, Social Security, and Medicaid, which are the main drivers of this debt, and this is only going to get worse in the future. So-- when you-- when you hear everybody in Congress saying we need to do something about this debt, you have to say to them, OK, Medicare, Medicaid, and Social Security are the problem. What's your plan?

And by the way, don't tell us we should cut taxes. I mean, you cannot cut taxes if you are serious about the debt. That's exactly what Republicans did in 2017, as we know, with the Tax Cuts and Jobs Act. Matt Gaetz voted for that. He voted to cut taxes. And this is coming up again at the end of 2025. Some of those tax cuts are going to expire, which means we're going to have de facto tax hikes unless Congress does something about that. So that is a big issue that's looming out there, and we need to be having a real conversation about this. Right now we are not having a serious conversation about this.

SEANA SMITH: Rick, how hopeful should we be that we are going to have a real conversation about it? Yes, we've heard both sides of the aisle address the debt issue, but they both blame each other for what's transpired, what's happened. And I you can make the argument that obviously they're both to blame to some extent.

RICK NEWMAN: I'm not hopeful we're going to get serious about this anytime soon. I think it's well understood that it's going to take a crisis or at least something that is fully recognized as a problem before anybody ever gets serious about doing this. Both parties are equally guilty here I think it's fair to say. President Biden, for what it's worth, I mean, he does have a plan. His plan is to raise taxes on businesses and the wealthy. Apparently that is just not something we can do in the United States anymore.

And you know, I don't let voters off the hook either. Voters, you know, in principle they're worried about all this debt but they don't-- nobody wants to make a sacrifice. Every-- taxes should always go up on somebody else, not on me no matter how rich you are. No, it's not my fault. Let's put it on somebody else. And that's the problem.

So we may actually be starting to see the beginning of a real market problem here because, I mean, these rising interest rates that we've been talking about for the last month, which are going beyond what the Federal Reserve is doing, one of the causes of that could be that we now have too much US debt in the market. And everybody who used to buy that debt is not buying it so much anymore, including China perhaps.

So rates are going up as a result. That affects mortgage rates. That affects car financing rates. It affects credit card rates. So it's possible that this is finally starting to hit ordinary people. But it's complicated. It's easy to dissemble and put disinformation out and just kind of like lie about the whole thing. So we have a ways to go.

BRAD SMITH: All right. Thanks so much, Rick, for keeping tabs on this and, of course, some of the disarray in Washington DC so that we don't have to every day. Appreciate it.

RICK NEWMAN: My pleasure. See you guys.