When Watching the Debate on Taxes, Remember the Debt

As Republicans in Congress move forward on their tax plan, it’s worth remembering one thing: whatever the legislative particulars, keep your eye on the plan’s impact on the federal debt. Our debt load is already worrisome (the U.S. national debt is now about $20.5 trillion). It’s almost certainly going to get worse.

At some point, this will become unsustainable — we just don’t know exactly when. One common measure of the debt problem is to compare the total federal debt to our gross domestic product (GDP). This basically measures whether a country’s economy is healthy enough to carry its debt burden. When Presidents Carter and Reagan were speaking out against the dangers of our large national debt, it stood at about 30 percent of GDP. Today, it is at 105 percent.

As the debt grows larger, it weighs more heavily on economic growth, crowds out private investment, creates economic uncertainty, dumps a burden on our children, and limits our ability as a nation to deal with unforeseen events. How we handle it will have a profound impact on our future and our role in the world.

The problem is that regardless of what our political leaders say about deficits and debt, their actions tend to belie their words: they continue expensive federal programs and lavish tax breaks on favored constituencies without regard to the long-term fiscal impact. I’ve come to believe that deficits will likely continue — with increasing debt — until some financial crisis focuses our attention on the serious imbalance between our taxes and spending.

Which brings us to the current move for tax “reform.” Tax reform can have several meritorious goals, including establishing a more equitable tax system, encouraging economic growth, and imposing fiscal restraint. What I don’t see in the current debate is much more than lip service to any of these goals.

What always worries me about tax debate on Capitol Hill is that it begins with a lot of talk about reform, and usually ends with a lot of talk about tax cuts. This isn’t surprising. Tax cuts are popular. Tax reform, which helps some people and hurts others, is politically treacherous.

So, as you watch the debate on Capitol Hill, use your judgment. Tax cuts can often help the economy, but not if they balloon budget deficits and the national debt. If that happens, they’ll eventually end up lowering growth and slowing the economy.             

Lee Hamilton is a senior advisor for the Indiana University (IU) Center on Representative Government, distinguished scholar at the IU School of Global and International Studies, and professor of practice at the IU School of Public and Environmental Affairs. Hamilton, a Democrat, was a member of the U.S. House of Representatives for 34 years, representing a district in south central Indiana.