Government ‘irresponsibly’ grew the national debt: Committee for a Responsible Federal Budget President

Maya MacGuineas, President of the Committee for a Responsible Federal Budget joins Yahoo Finance’s On The Move panel to break down Former Vice President Joe Biden and President Trump’s economic proposals to help revive the economy.

Video Transcript

Tonight will be night 3 of the Republican National Convention. There has been discussion of the threat of a Joe Biden presidency, attempts last night to recast President Trump's record on race. But one thing that speakers haven't discussed so much, government finances. Two words that they have not said-- "budget" or "deficit." In fact, they weren't said at the Democratic National Convention either.

Maya MacGuineas is joining us now. She is president of Committee for a Responsible Federal Budget, and she is joining us from Washington, DC. Perhaps not surprising, Maya, right? That given at a convention during a pandemic, that they're not talking much about budget or deficit. But I'm guessing you think that they should be. How do you think that they should be addressing this?

MAYA MACGUINEAS: Yeah, I totally agree. It's not surprising in that it is not the top priority right now, and in fact, it shouldn't be. What's a little unnerving, though, is how much it feels like all the candidates are very eager to duck this issue no matter what. And the way that ideally somebody who's really owning up to the many, many economic challenges we have right now would lay it out is, first and foremost, we have to focus on getting control of this pandemic. And along with that, we have to take all the measures necessary-- which includes a lot of borrowing-- to help with the economy.

But-- and this is an important "but"-- and if they were really being honest, they would say, we have spent the past years irresponsibly growing the national debt. And we entered this crisis with our debt as a share of GDP much too high, much higher than it should have been. When we get through this, we as a country have to turn our attention to bringing the debt back down to sustainable levels where it's not growing faster than the economy. And that will take real choices.

And the problem is, that kind of responsible talk on fiscal policy no longer seems to be good politics. And if we don't get back to where it is, we are going to bump up against a whole lot of problems.

JULIA LA ROCHE: Maya, it's Julia La Roche. And you talk about bringing it back to responsible levels and real choices here. How are you starting to discern the two candidates and who that person might be and if they would actually make those responsible choices, if you will?

MAYA MACGUINEAS: Great question. And it is going to be more difficult than normal, because you don't expect anybody to talk about changes they would make immediately. This is not a hundred-day-- the first 100-day plan. It shouldn't be. That would be really damaging to the economy.

But I think the biggest test will be to somebody, instead of taking all sorts of things off the table, instead talk about the kinds of choices we are going to have to make. So, for instance, you have-- and ultimately we have a program called US Budget Watch, where we will put out all these numbers and actually lay out what the candidates' proposals are and how they would affect the debt. That should come out in probably a month or so.

But what we know so far is that candidate Biden has put a lot of spending proposals on the table. He has also put some tax increases that would help pay for them, but not enough. All of his spending so far is significantly higher than his tax increases, and he's made a promise not to increase taxes for anybody under 400-- making less than $400,000.

Candidate Trump-- President Trump has talked more about the things he wouldn't do or the things that would actually make the deficit worse, in that he's talked about a combination of more tax cuts and spending increases. He does have a couple good ideas that have come out of his previous budget on controlling health care costs, but for the most part, he would widen the deficit significantly with very few offsets. I think the test here-- before we get to the specifics of the numbers and how much it would affect it-- is, are you willing to say anything hard?

If we continue to tell the country-- and all of us-- none of us like to pay taxes or have our spending cut, but if you continue to push that message that you can have all the things you want and never pay for them, we are going to be on an unsustainable path. So the real trick is look for the candidate who will tell you the truth about the fact that we will have to make hard choices in our budget in the coming years.

And specifically, just I would also say, anybody who would mention that we have to get ahead of the huge problems in Social Security and the Medicare trust funds, both of which are on a path towards insolvency. That gets demagogued all the time, but that is the reality, and we have to make changes to those programs. And taking those programs off the table does an incredible disservice to the people who depend on them.

- Maya, you discussed the budget deficit not being at the forefront of this particular election, but you also mentioned potentially bumping up against a whole new suite of problems. Now looking at these candidates' budget plans, what are the consequences in terms of the trajectory we're on with kicking the can down the road in terms of increasing borrowing? And at what point would these consequences begin to be felt?

MAYA MACGUINEAS: Yeah. There's many risks of having an excessive debt level, which is what we have, and they are economic. They are to your budget in terms of being able to prepare for new changes in your economy, which we know we're going to be facing massively in the coming years through technological change and changes in globalization-- shifts there. Preparing for natural disasters, recessions, all sorts of things. But the biggest issues for why you don't want to have a debt that's too high is the damage it does to your economy, which shows up in different ways, and the vulnerability it leaves for all sorts of risks that come along.

And right now, I think the risk that we have no idea when they may show up but the basics of math and economics indicate that we're on a path where they will, would be, when will interest rates go up? We have interest rates-- we've basically become addicted to low interest rates. We need them now for so many reasons, and so we're in a bit of a tough situation where if interest rates go up, it hurts the fiscal situation so much worse.

So you need to keep them down, but that becomes more difficult over time. It could show up in higher interest rates. It could show up in inflation. It could show up in changes to our currency.

One of the biggest risks is that people lose faith in the US as the single best currency to invest in when times are down-- the reserve currency. And it's as though we're trying to push that along, right? We should hold on to the benefit of being the reserve currency instead of trying to squander it, which is what it seems like we are doing. And it just-- it is hastening a lot of the challenges that we have.

The reason we don't know when it will make a difference is it really depends on the state of other countries' economies and fiscal situations since so much of this is about global flows. But we are in an enviable position where people want to lend to us. We should not squander that. And for the past years, we really have been making it much, much more difficult to hold onto that privilege.

JULIE HYMAN: Of course, there is a school of thought that that will never happen or we don't need to worry about it. But I don't want to go too far down that hole right now, Maya, because--

MAYA MACGUINEAS: Don't get me started.

JULIE HYMAN: It's a whole other argument. I do ask you, though, to get a little bit more specific about benefits and what is going to happen to those in the US. Because, of course, the president had talked about those payroll tax cuts maybe even becoming permanent. The chief actuary at the Social Security Administration has reportedly said that if he got rid of the payroll tax, that that could end Social Security benefits in 2023. What is your take on that forecast?

MAYA MACGUINEAS: Well, sure, if you get rid of the revenue stream that funds a program, that's going to put an awful lot of pressure on those benefits. We can't get rid of the payroll tax unless we were to replace it with something else. The whole conversation about a temporary payroll tax cut to help the economy I think was mistargeted for a number of reasons. One, a temporary tax cut that you're going to have to repay in a few months doesn't do anybody any good. It just means there's a whole lot of logistical challenges in saving that money to repay it later.

Two, we shouldn't be looking at how to undermine the finances of Social Security. We should be looking at how to shore them up. And three, a payroll tax cut in and of itself is probably one of the least-- or not least, but it's not as targeted as you would want for future economic measures. We should be thinking about how to help people who are unemployed, how to help businesses stay in business.

A payroll tax cut that helps a lot of us who are actually still working-- and many people aren't suffering-- isn't targeted. So it's not smart for a lot of reasons. But the issue is that Social Security, even if you don't make changes, will face the inability to pay full benefits as early as in the 2030s, the early 2030s. So existing retirees will have their benefit cuts. People who depend on the program will have their benefits cut. People who are just entering will have smaller benefits than have been promised.

And the fact is, you can change this program and fix it in many ways-- through tax increases, spending cuts, the retirement age, a combination of all of them, which I think makes the most sense. But delaying, which we have literally done for decades now, means that the choices will be so much more painful. And the risks of people not knowing what is going to come to them keeps them from preparing. And as sort of my summary for so many of these issues is, it's our politicians not doing their job because they don't want to tell us anything hard.

If we want benefits, if we want spending, we have to pay for it. You can't borrow indefinitely. And I think, despite sort of crazy economic theories, that that seems like it's a pretty understandable concept. And as long as our two parties are so busy fighting each other, they are not willing to make the-- tell the honest truth about what we have to do to have a responsible fiscal policy and strengthen our important programs like Social Security and Medicare.

JULIE HYMAN: Yeah, long-termism is definitely not our strong suit. Maya MacGuineas, thank you so much. It's always good to get your thoughts. Committee for a Responsible Federal Budget president, Maya MacGuineas, appreciate it.

MAYA MACGUINEAS: Thank you.