There is a basic rule of thumb when it comes to the federal budget. The government should spend heavily during times of crisis — recessions, wars, pandemics — and then get its fiscal house in order when the crisis passes.
The tax and spending bill passed by the House of Representatives last month turns that rule on its head, adding trillions to the debt at a time when unemployment is low and the economy is solid by most measures. That could make it much harder for the government to come to the rescue in the next downturn.
The Senate this week is expected to take up the bill, which would extend most of the tax cuts enacted during President Trump’s first term, and would add billions of dollars in new tax breaks for tipped workers, business owners and other groups. It would cut spending, too, but not by nearly as much. In total, the bill would add trillions to the national debt over the next decade, according to congressional scorekeepers.
That comes on top of a sea of red ink that has swelled to near-record levels in recent decades. In 2000, after years of strong economic growth and spending cuts under President Bill Clinton, the federal debt load was about a third the size of annual economic output. Since then, after decades of tax cuts and spending increases, this measure of the debt burden has roughly tripled, to about 100 percent of gross domestic product, the highest level since World War II and at a rate of growth that experts across the political spectrum say is unsustainable.
“I’m extraordinarily concerned about the fiscal implications of this,” said David H. Romer, an economist at the University of California, Berkeley, who has studied the impact of government deficits. “We’re starting from high levels of debt, high levels of deficits, projected growing budgetary pressure from an aging population. And the investors are already jittery about this, so this is not just hypothetical.”
The worry, long expressed by Mr. Romer and other economists, is that investors will eventually balk at lending the government money, or will demand punishingly high interest rates for doing so. That could set off a downward spiral in which rising interest payments add further to the debt, making investors increasingly reluctant to lend and eventually driving up the cost of government borrowing even higher.