“The high level of U.S. government debt is likely to mean that the U.S. economy is much more interest-rate sensitive than it has been historically.”

Robert Kaplan, president of the Dallas Federal Reserve

Robert Kaplan, president of the Federal Reserve of Dallas, highlighted one of the problems with our burgeoning federal debt, which just surpassed $22 trillion. Associated with a high debt level is that the interest cost of the debt will crowd out funding for other government programs. “Interest-rate sensitive” is a code word for higher interest costs.

The Congressional Budget Office projects that annual deficits will average $1.2 trillion over the next 10 years, some 4.4 percent of gross domestic product. By 2029, the CBO estimates that our debt will reach $28.7 trillion.

The CBO predicts federal spending will rise from 20.8 percent of GDP in 2019 to 23 percent in 2029. Programs such as Social Security and Medicare will cost more to cope with our aging population and rising health care costs.

Unfortunately, the U.S. government incurred its largest budget deficit in the most recent fiscal year that ended September 30, 2018. The shortfall was particularly disconcerting because it occurred during a period of fast economic growth.

Our fiscal problem is escalating. For the four months from October through January the deficit rose to $310 billion, a 77 percent increase over the previous year’s period. Receipts fell by 2 percent to $1.1 trillion, while spending increased by 9 percent to $1.4 trillion.

Historically, deficits normally decline during economic booms for the following reasons: Tax revenues generally increase because household income, corporate profits, and capital gains all rise. Moreover, the government incurs reduced expenses on safety-net programs such as unemployment insurance and food stamps.

Jason Furman, chairman of the Council of Economic Advisers under President Obama said: “A deficit of this magnitude in an economy this strong is historically unprecedented.” Furman further noted that stagnant government revenue was proof that tax cuts do not pay for themselves.

Unfortunately, we cannot grow ourselves out of the problem. In 2018 our gross domestic product grew 2.9 percent. We have unemployment close to 3.7 percent and a deficit of 3.9 percent of GDP. By comparison, in 2000 when our jobless rate was below 4 percent, we ran a surplus of 2.3 percent of GDP.

The following data shows the impact of the Trump tax cut. Individual income taxes rose 1 percent; however, corporate tax receipts fell 31 percent. Federal corporate tax rate dropped from 35 percent to 21 percent.

Academic research by former chair of the Council of Economic Advisers, Christina Romer, has shown that countries with higher levels of government debt relative to the size of their economies fare worse after financial crises than countries with lower debt levels because they cannot pursue aggressive fiscal stimulus to shore up their economies.

I agree with former Democratic Governor Ed Rendell and former Republican Senator Judd Gregg, the co-chairmen of the non-partisan group Campaign to Fix the Debt. The organization wrote: “This milestone is another sad reminder of the inexcusable tab our nation’s leaders continue to run up and will leave for the next generation.”

I hope readers of this column do not think that I only see the hole in the doughnut. Trust me, on balance I am upbeat. However, in baseball parlance, I have to “calls ‘em like I sees ‘em.” Sadly, the last presidential candidate who called for a tax increase was Walter Mondale. In 1976 he carried only one state. As his standard bearer, I think we need to take steps to put our country on a better fiscal and economic path. I recently announced plans for running for dogcatcher.

Originally published in the Sarasota Herald-Tribune