Election-Year Spending Promises and the Deficit They Leave Behind

With the general election now less than four months away, both major parties have entered the phase of the campaign where fiscal restraint goes to die. In the past six weeks alone, the two presidential nominees have collectively promised more than $3.2 trillion in new spending over the next decade — on infrastructure, healthcare, defence, tax cuts, and an assortment of targeted sweeteners aimed at swing-state voters — without offering anything resembling a credible plan to pay for it.

The Republican nominee, Senator Wade Crenshaw, has pledged to extend and expand the expiring tax cuts enacted in 2017, eliminate taxes on tips and overtime pay, increase defence spending by 12%, and fund a new border-security package that his campaign estimates at $140 billion over ten years. Independent scorekeepers at the Committee for a Responsible Federal Budget put the true cost closer to $1.8 trillion when dynamic effects and interest costs are included. The campaign's claim that growth alone will cover the gap relies on economic assumptions that no mainstream forecaster has endorsed.

The Democratic nominee, Governor Elise Thornton, has been no less generous. Her platform includes universal pre-kindergarten, an expanded child tax credit, a $500 billion green-infrastructure programme, subsidised prescription drugs for seniors, and a partial student-debt cancellation plan that her campaign prices at $400 billion but that analysts at the Wharton Budget Model estimate could cost twice that. Thornton has proposed paying for some of it with higher taxes on corporations and households earning above $400,000, but even her own advisers privately acknowledge a funding shortfall of at least $600 billion.

"This is not a policy debate. It is an auction," said Gerald Huang, chief fiscal analyst at the Concord Coalition. "Each side is trying to outbid the other with money the government does not have. The deficit is already running above $1.9 trillion a year, and both candidates are proposing to make it substantially worse. The bond market is watching, and at some point it will stop being polite."

The pattern is depressingly familiar. An analysis by The Ledger of the past seven presidential campaigns found that candidates' spending promises have exceeded their proposed revenue increases in every single cycle, with the average gap widening from roughly $200 billion in the early 2000s to more than $1 trillion today. Once in office, the winning candidate has invariably enacted the popular spending measures while quietly shelving the less popular pay-fors. The result is a ratchet that only turns in one direction.

Economists across the political spectrum are sounding alarms that neither campaign appears interested in hearing. "We are running structural deficits at levels that used to be reserved for wartime or deep recession, during a period of low unemployment and moderate growth," said Radhika Subramanian, a former deputy director of the Congressional Budget Office. "That is historically unprecedented, and the candidates are competing to make it worse. At some point, the arithmetic catches up."

The arithmetic is already uncomfortable. Interest payments on the national debt now exceed the entire defence budget for the first time in history, consuming roughly 14% of federal revenue. The Congressional Budget Office projects that, under current law, the debt-to-GDP ratio will reach 120% within a decade. Under either candidate's proposals, it would climb to between 130% and 145%, depending on the assumptions — territory that, until recently, was associated only with countries in the midst of fiscal crises.

Voters, for their part, seem to have internalised the contradiction without resolving it. Polls consistently show that large majorities support both the specific spending programmes the candidates are proposing and the abstract principle of deficit reduction. When the two impulses conflict, the spending impulse wins every time. "Nobody ever lost an election by promising to spend more," said Huang. "The voters who say they care about the deficit also say they want every programme that makes it worse. The candidates are responding to the incentives they face."

The question is how long the incentives can hold. Bond yields have crept higher over the past month as traders price in the likelihood that the next administration, regardless of party, will add substantially to the national debt. A sudden loss of confidence — the kind of event that forced fiscal reckoning in other countries — remains unlikely for an economy with the dollar's reserve-currency privilege. But unlikely is not impossible, and the margin of safety is thinner than it was a decade ago. "We are not in a crisis," Subramanian said. "But we are borrowing as though we are, and spending the money as though we are not. That is not a sustainable combination."