Megan McArdle: Both parties need to face up to the national debt

Rep. Ro Khanna (D-Calif.) and I disagree on any number of political questions, but I've never doubted his intelligence. So it was dispiriting to see him tweet last week that our national debt was caused by only four things: "1) Reagan's tax cuts, 2) Bush's tax cuts, 3) Trump's tax cuts, and 4) Bush's overseas wars."

"We don't need a fiscal commission to study it," he added. "Everyone knows Johnson's fiscal commission will recommend cuts in Social Security & Medicare. Instead, we need to end the tax breaks for the ultrarich and make a moonshot investment in American industry."

Khanna's assertions about the debt are simply not true. And I assume Khanna knows better.

Yet it's hard to bring myself to fault him too much, because at the moment everyone in Washington is playing the same damned game, a noxious hybrid of "let's pretend" and "not it." The budget hawks in the GOP have been effectively vanquished by the Trump faction, and the days when Democrats strove to claim the mantle of fiscal responsibility are long gone. Now, approximately no one is trying to contain budget deficits, which stand at almost 6% of GDP, or the resulting national debt, which is on course to equal basically the entire annual output of the U.S. economy.

Instead, they're looking to allocate blame, hoping to force the other party to bear the responsibility for fixing it.

This won't work, because the problem is bipartisan, and it's getting bigger as interest rates soar, raising the cost of borrowing and of rolling over old debt. Politicians need to stop playing around and face the truth.

Let's start with Khanna's four bullet points: The treasury lost about $1.5 trillion to the George W. Bush tax cuts during his term, $2.1 trillion by the most generous estimate of the cost of the wars in Iraq and Afghanistan (plus another $465 billion to care for veterans of those wars), and roughly $2 trillion to the Tax Cuts and Jobs Act, aka the Trump tax cuts.

Even Ronald Reagan, the most profligate of the bunch, cannot bear most of the blame for the mess we're now in - though he absolutely did contribute to our current woes. His administration's tax cuts and failure to restrain spending nudged the national debt from about a quarter of GDP to 40% during his term. It rose still further, to almost 48%, during the recession of the early 1990s.

All this was irresponsible - but also, relatively brief. George H.W. Bush and Bill Clinton each presided over bipartisan deficit deals, worth about half a trillion dollars apiece, that contained stiff tax hikes. By 1996, the share of GDP collected in taxes was higher than it had been in 1981, and the debt was on a glide path to roughly a third of GDP, which is where it remained - despite tax cuts and wars - until 2008.

So even throwing in trillions for the Reagan tax cuts, and trillions more for interest, doesn't begin to explain how the national debt rose from $712 billion in 1980 to $24.2 trillion today. For this you need a couple of economic catastrophes - and a lot of spending by Democrats and Republicans alike.

From the collapse of Lehman Brothers to the final year of Barack Obama's presidency, the national debt rose from about a third of GDP to roughly three quarters. It maintained that level for the first years of the Trump administration - until the pandemic hit, whereupon it rose sharply again, to almost 100% of GDP, where it has been ever since.

In other words, most of our national debt was accumulated during the twin crises of the Great Recession and the pandemic.

Much of this was due to higher spending, especially on the pandemic. Some was due to tax cuts - under Obama the federal government temporarily cut the payroll tax and extended most of Bush's tax cuts. And some was due to the simple fact that when the economy craters, so does tax revenue, even if rates stay the same.

You can argue that we'd have had more fiscal space to deal with those crises without the tax cuts and the wars. And I'd agree! But the same is true of any spending program you'd care to point to, including the unnecessary $1.9 trillion relief bill that President Biden secured just as the pandemic restrictions were ending.

None of this matters as much as the fact that we still have a deficit of almost 5.8%, even though unemployment is low, GDP growth is strong, and there is no excuse for failing to balance the books, except that the political trade-offs are hard, and - contra Khanna - almost certainly involve making changes to Social Security and Medicare. Together, these programs account for about one-third of spending, and that share is growing.

This is America's real budget crisis. And yet it pales in comparison with the biggest problem of all: politicians who keep trying to pretend our troubles away, rather than face up to what needs to be done.

Follow Washington Post columnist Megan McArdle @asymmetricinfo on X (formerly Twitter).