What Is Deficit Spending, and Should It Matter to Voters?

RICHMOND, Va. — The U.S. national debt sits around $35 trillion, which equates to approximately $100,000 per person in the country. With a presidential election looming, is either candidate up to tackling the debt ‒ and should the deficit be a deciding factor for a voter?

Debt is not new for America. Costs from the American Revolutionary War left the Founding Fathers with debts amounting to $75 million.

The U.S. national debt has been eliminated once, in 1835 during the Andrew Jackson presidency, according to the U.S. Treasury. Shortly after, the U.S. suffered a banking panic in 1837 that caused a depression. The subsequent loss of government revenue meant deficits were accrued, making it necessary to carry the national debt.

Difference Between Debt, Deficit and Surplus

A deficit occurs when a government spends more money than it receives in taxes in a year. To cover this, governments often resort to borrowing money.

Deficits can occur in households, too. Deficit spending can be compared to using a credit card, according to private wealth manager Rich LaRose.

“If your income is two grand a month, and your expenses are $2,500 a month, and you can’t increase or decrease either of those, then your only option is you have to deficit spend,” LaRose said.

A surplus is the opposite of a deficit, which means the government takes more in taxes than it has spent. There has been a surplus only four times in the last 50 years, with the last in 2001, according to data from the White House.

The national debt is the total amount of money the government has borrowed that has not been paid off. When a fiscal year ends in a deficit, that amount is added to the total debt.

When the government takes on debt, it is essentially borrowing from itself by selling bonds with interest.

“Bonds are nothing more than a fancy IOU,” LaRose said. “You’ll give me $1,000 today … and then over the next 10 years while you wait, I’ll pay you a little bit of interest along the way.”

Where Does the Money Go?

Government spending can be categorized into three main types: mandatory, discretionary and supplementary.

Mandatory spending is when the government cannot take away funding from certain entitlement programs without changing the law, according to the Department of the Treasury and the Bureau of the Fiscal Service website on fiscal data. Current entitlement programs, or safety net programs, are Social Security, Medicare and Medicaid.

Discretionary spending, which makes up around one-third of government spending, is adjustable. Congress creates a federal budget for the year, and sends it to the president for approval. Programs that depend on discretionary spending include defense, education, transportation and social services. Generally, more than half of the discretionary budget goes to the defense budget in the U.S.

Supplemental spending is when the federal government spends beyond the annual budget. It is often used to address immediate needs such as disaster relief, public health concerns and military responses. During the COVID-19 pandemic, the government passed four supplemental spending measures.

Deficit Pros and Cons

The use of deficit spending is not inherently negative in the short-term. In some cases, deficit spending can be used to boost economic activity.

Supplemental spending supported struggling businesses and individuals during the pandemic, according to Christopher Herrington, an associate professor of economics at Virginia Commonwealth University.

“We made those decisions collectively and rationally, thinking that this is a good investment to combat the pandemic and avoid the economy falling into a deep recession,” Herrington said.

If investors do not trust the U.S. to repay its debt, the country will have to borrow money at higher interest rates, which can result in higher taxes for citizens, according to Herrington. Additionally, high levels of debt can limit the government’s ability to respond to future crises such as pandemics or wars.

“If you’ve hit your credit card limit, it can make it more challenging to respond if you need to borrow money for some emergency,” Herrington said.

Third-Party Perspective

Libertarian presidential candidate Chase Oliver criticizes Republicans and Democrats for deficit spending. Oliver would demand a balanced budget from Congress if elected president, he said.

“There’s going to be disruption if we’re getting ourselves towards fiscal sanity,” Oliver said. “The disruption would have been a lot less if we had done this 10 years ago, it will be a lot worse if we do it 10 years from now.”

Oliver would look to Social Security and military spending for some initial cuts.

“I think the largest in our discretionary budget is the Pentagon,” Oliver said. “We could cut our military spending in half and still be by far the most capable fighting force in the world.”

Is Either Party Better at Managing the National Debt?

Neither Vice President Kamala Harris or former President Donald Trump have proposed a formal plan to address the national debt, according to a report from the Committee for a Responsible Federal Budget. The candidates are likely to increase deficits and national debt over the next decade, according to the report.

The Harris plan would increase the deficit by almost $4 trillion, while Trump’s plan would increase the national debt by $7.5 trillion.

They both support increased spending on border security, eliminating taxes on tipped workers, and expanding the Tax Cuts and Jobs Act, or TCJA, which expires next year. Harris would limit the tax cuts to households that make less than $400,000 a year.

Harris proposed to expand the Child Tax Credit and individual tax credits, help some homeowners with down payments, provide tax breaks for childcare expenses, and lower the cost of prescription drugs. She also advocates for more investment in education, small business tax breaks, long-term home care and paid leave.

She would increase taxes on high-income households and corporations to help with the cost of her plans.

Trump wants to reduce energy and environmental tax cuts and regulations and eliminate the Department of Education. He would increase military spending, remove income taxes on Social Security benefits and expand the TCJA to include additional tax cuts for corporations. Trump would lower the corporate income tax rate to 15%, which he already reduced from 35% to 21%.

To offset the costs of his proposals, Trump plans to impose new tariffs on imports.

Trump claimed he would eliminate the national debt in eight years during his 2016 campaign, but 10-year impact estimates show he added twice as much debt than his Democratic successor. Trump’s overall contribution to the national debt is forecast to be $8.4 trillion, according to the Committee for a Responsible Federal Budget. COVID relief accounts for $3.6 trillion of that figure.

Biden added a forecasted $4.3 trillion to the national debt, according to the same report. COVID relief accounted for $2.1 trillion.

“It’s almost a bit ironic that the Republican party has a reputation of fiscal conservatism, of at least claiming outwardly to want to reduce deficits and reduce spending, but their track record doesn’t suggest that they’re that much better, if at all, at controlling spending or reducing deficits,” VCU professor Herrington said.

Recently, 23 winners of the Nobel Prize for economics signed a letter to endorse Harris, both her fiscal stewardship and candidacy.

Stephen Farnsworth is a political science professor and director of the Center for Leadership and Media Studies at the University of Mary Washington.

Recent Democratic presidents have seen smaller deficits than Republicans, according to Farnsworth.

However, neither party tends to be fiscally responsible. Democrats favor expanding programs, while Republicans prefer tax cuts, and both achieve these goals by spending in the deficit, according to Farnsworth.

“People often want what they don’t have,” Farnsworth stated. “Each candidate promises to do better than the opposing party did, and that message often connects with an audience that believes things are going to get better when the other side is in charge.”

By Brodie Greene
VCU Capital News Service

Capital News Service is a program of Virginia Commonwealth University’s Robertson School of Media and Culture. Students in the program provide state government coverage for a variety of media outlets in Virginia.