By Kate Davidson 

Federal debt has climbed in recent years, and it is on a trajectory to rise further regardless of who is in the White House come January, as the economic downturn and the rising cost of Social Security and Medicare pressure government finances.

Both President Trump and former Vice President Joe Biden have called for more spending to combat the economic fallout from the coronavirus pandemic, arguing that short-term deficit increases are necessary to help stimulate the recession-stricken economy and help businesses and households.

Mr. Trump is also pushing for more tax cuts, which would further increase the deficit. Mr. Biden has called for large spending initiatives -- on infrastructure, education and health care -- that he says could boost long-term economic growth. The Democratic presidential nominee has said he would pay for those plans with tax increases on the wealthy, but it isn't clear that would raise enough to offset all of the higher spending.

Each man has also promised to protect Social Security and Medicare benefits, which are projected to be the biggest drivers of deficit increases over the next 10 years as the population ages and health-care costs rise.

The upshot: Both candidates' fiscal plans would add substantially to the total U.S. debt, according to estimates from the Committee for a Responsible Federal Budget. Executing those plans, however, would depend on cooperation from lawmakers, and it would become much harder if Congress remains divided.

Deficits and Debt

When he campaigned for president in 2016, Mr. Trump promised to eliminate deficits and pay down the government's debt over eight years. Instead, he presided over four straight years of rising annual deficits, signing two bipartisan budget agreements, which boosted federal spending, and his 2017 tax cuts, which stunted revenue.

Then the coronavirus struck. Budget shortfalls soared as policy makers approved trillions of dollars of fresh spending, and tax revenue declined as businesses shut down, laying off millions of workers. The 12-month deficit as a share of gross domestic product tripled to roughly 16% in September from 4.9% in February. Government debt now exceeds the size of the U.S. economy for the first time since the end of World War II.

Mr. Trump, who went back and forth on whether additional pandemic aid would be necessary, has negotiated in recent weeks with House Democrats over a $1.9 trillion package and has said he is willing to spend more. Mr. Biden has expressed support for the $2.2 trillion measure passed by the House, led by Speaker Nancy Pelosi (D., Calif.), on Oct. 1. He has also endorsed many of the provisions included in the $3.4 trillion Heroes Act the House passed in May.

Mr. Trump has so far been unable to marshal support for another large aid bill among Senate Republicans, many of whom would likely continue to oppose the measure regardless of who wins the election, citing concern about growing deficits.

Policy makers and economists, including those who have advised Mr. Biden, say there is little downside to borrowing more if it means a faster return to economic health. Interest rates are expected to remain near historic lows for years, so it will be cheap for the government to borrow.

Mr. Trump's advisers have echoed similar views. Asked last month whether the U.S. would soon need to start cutting spending to bring deficits under control, Treasury Secretary Steven Mnuchin said only that it would be important to slow the pace of spending increases, relative to economic growth, over the next 10 years.

Excluding temporary spending related to the downturn, the Committee for a Responsible Federal Budget estimates each candidate's policies would have a similar impact on the government's finances: Mr. Trump's would add roughly $2.45 trillion to the debt and boost debt as a share of GDP to 125% by 2030, while Mr. Biden's plans would add up to $2.35 trillion and increase debt to 128% of GDP, reflecting slower growth.

The group cautioned that the estimates are highly uncertain, especially for Mr. Trump, who has released few details about his second-term policy agenda. The costs could be higher or lower depending on how quickly the policies are implemented and on the pace of the economic recovery.

Social Security and Medicare

Both candidates have vowed to protect Social Security and Medicare, despite the long-term effect the programs are having on the federal debt, and they have accused each other of seeking to gut the popular programs.

Mr. Biden has proposed imposing the payroll tax on wages over $400,000 -- as well as on the first $137,700 of wages, the current cap. That is to help bolster Social Security, among other priorities, and increase some of the program's minimum benefits. That proposal is in line with others from Democrats in recent years.

Independent analyses of Mr. Biden's plan say increasing the payroll tax cap would raise between $740 billion and roughly $1 trillion over a decade, though it may not be enough to offset the cost of increased benefits. Any shortfall would have to be covered by the government budget.

The programs' long-term finances have continued to deteriorate during the pandemic. The Congressional Budget Office this month said reserves from the old-age and survivors insurance trust fund, which finances most of the Social Security program, will now be exhausted in 2031, one year earlier than previously predicted. Reserves for disability benefits will likely run out in 2026, rather than lasting through the decade, the CBO said, potentially leading to an immediate benefit cut absent congressional action. And reserves for Medicare's hospital trust fund are expected to last until 2024.

As the Medicare and Social Security trust funds are drawn down, the CBO projects the shortfalls will add roughly $3 trillion to federal deficits over the next decade. That amounts to 90% of the increased deficits projected during that time, according to estimates from Brian Riedl, a senior fellow at the Manhattan Institute, a right-leaning think tank.

If the economy recovers more slowly than the CBO expects, the trust funds could exhaust their reserves even sooner, making it an urgent issue for the next president and Congress. So far, neither candidate has offered a detailed proposal to address the coming shortfalls.

Write to Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

October 30, 2020 09:40 ET (13:40 GMT)

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