MY VIEW: Maya MacGuineas Dangers in Donald Trump’s Debt Suggestions

Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt, wrote a commentary that appeared in the Wall Street Journal Washington Wire. It is reposted here.

Earlier in the campaign cycle, I wrote about how the presidential candidates had been asked more than 200 questions in debates so far but that none had touched on the national debt. Things have changed. But the recent range of comments from Donald Trump about how he would handle the debt fall somewhere between confusing and potentially damaging.

First the presumptive Republican nominee suggested in March that he would pay off the national debt in eight years. He later backed away from that proposal, which was good because such an aggressive goal would be both politically challenging and probably economically devastating. Paying off the actual debt in such a narrow time frame is pretty much unimaginable because it would require draconian spending cuts and massive tax increases likely to tank the economy.

More ideal is a plan that keeps the debt from growing faster than the economy and achieves balance down the road, on a timetable consistent with helping the economy to grow, not shrink. An important point in this debate is that the U.S. does not need to ever pay off the debt completely; the goal is to keep it at a manageable level. National debt is desirable in that it provides the U.S. Treasury market. One way not to achieve responsible fiscal goals is by cutting taxes $9.5 trillion over 10 years and pledging not to reform entitlement programs, as Mr. Trump has also proposed.

Further confusing matters is that Mr. Trump has also suggested paying off the $19 trillion U.S. debt. The amount of debt the U.S. has issued on public markets is $14 trillion. This debt is what affects the cost of public borrowing and the macro-economy. The total debt is $19 trillion and includes the amount that the U.S. owes itself for borrowing from government trust funds. Talk of eliminating the $19 trillion debt hasn’t included what, precisely, would be deposited into the Social Security trust fund, which is legally required to hold U.S. Treasury securities. The difference between the two amounts is a reminder that the federal debt is not as straightforward as many private-sector debt markets.

Last week Mr. Trump told CNBC, “I am the king of debt. … I love debt and I love playing with it.” He described a plan for cutting national debt by getting creditors to accept less than they are owed. Creditors would not willingly renegotiate their debt to get paid less. Forcing them to do so would be defaulting. A U.S. default would rob many savers of what they are owed and would drive up our cost of borrowing for years or decades to come. A managed default is a desperate act for a desperate country in a disastrous economic situation–not a negotiating tool.

In a series of follow-up comments Mr. Trump proposed debt buybacks depending on different interest-rate scenarios – an activity that changes debt levels and interest payments but doesn’t generate any major savings – and then tried to reassure skeptics by pointing out that the U.S. can’t be forced to default because we can print money (unlike nations whose debt is not in their own currency). The U.S. can print dollars – but this skips over the point that his earlier comments indicated a U.S. president negotiating a form of default, a scenario that is not consistent with the Fed simultaneously printing money.

I would be the first to argue that the government could benefit from greater private-sector influence – from stronger oversight to creating smarter incentives. But private-sector lessons carry over only so far because the private and public sectors differ in many ways – particularly in the debt markets. Understanding those differences should be a precursor to tossing out policy prescriptions.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

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