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• In 2020, the publicly held debt exceeded 100% of GDP for the first time since World War II.
• Another measure of the debt that also includes loans between government agencies has been above 100% of GDP since 2012.
• Much of the federal debt increase has been driven by mandatory spending that’s beyond the direct control of any president, and much of the rest has been initiated by lawmakers and presidents from both parties.
Four years after passing a major tax cut that slashed federal revenues, Republicans are raising alarms about the national debt again.
President Joe Biden has already signed a $1.9 trillion coronavirus and economic relief package known as the American Rescue Plan, and he’s pushing to enact perhaps trillions more in federal spending for infrastructure and other priorities.
One Republican argument against these measures has been their impact on the national debt, although Biden has also proposed tax increases to fund some of his plans.
Former U.N. ambassador and former South Carolina Gov. Nikki Haley, a Republican, took a shot at Biden’s fiscal policy in a June 28 Facebook post.
"The national debt is now bigger than our economy," she wrote. "That hasn’t happened since World War Two — and we’re in peacetime. Joe Biden is digging a hole America can never fill. But he doesn’t care. When the bill comes due, he’ll be long gone."
She is correct about the debt ratio — the nation’s publicly held debt did exceed its gross domestic product at the end of 2020, for the first time since World War II. But Haley’s post focused narrowly on one measure of government debt. And it goes too far in associating Biden’s policies with the nation’s debt burden.
The two parts of the debt-to-GDP ratio are intertwined: Governments may take on more debt to finance programs that promote economic growth. And as a country’s economy grows, so does its borrowing capacity. But at a certain level, high government debt can also inhibit economic growth by raising borrowing costs for businesses and consumers.
The debt reaching 100% of GDP sounds scary, but economists say it’s not necessarily an ominous sign for a country like the U.S. that has strong credit, big reserve assets and expansive borrowing capacity. Such countries can more easily manage their debt loads, and keep their governments functioning over the long term, without resorting to tax increases, said Olivier Blanchard, the former chief economist of the International Monetary Fund, in a 2019 speech. So the "hole" Haley refers to doesn’t affect the U.S. the way it would a weaker economy.
Still, it’s a development that attracts notice from commentators and politicians, such as Haley, who is a potential 2024 presidential candidate.
There are two widely used metrics for federal debt, and both are considered valid. Haley’s historical claim about the ratio is right if you use one measure and wrong if you use the other.
The smaller of the two figures is known as publicly held debt. This includes the debt held by the general public through Treasury bills, bonds and notes. Some is held by U.S. nationals, and some by foreigners.
The larger figure is called gross federal debt. It takes the publicly held debt and adds to it the debt that the government owes itself. This typically happens when trust funds, such as those that pay for Social Security and Medicare, accept federal IOUs.
Haley is correct that the publicly held debt recently crossed the threshold of 100% of the nation’s GDP for the first time since World War II. But it’s worth noting that this milestone occurred at the end of 2020 — the last full year of Donald Trump’s presidency.
In just that one year, the ratio soared from 79% to 100%, as the government spent heavily to fight the coronavirus and the resulting economic slowdown.
Meanwhile, the gross federal debt has been at or above 100% of GDP at every year’s end since 2012. So the year-end level was already there during most of Barack Obama’s administration and through all of Trump’s.
A representative for Haley told PolitiFact that her statement was simply stating a fact about the level of debt, and arguing that Biden’s policies would worsen that percentage going forward.
But Haley’s use of the word "now" in conjunction with the critique of Biden’s policies gives the impression that she holds Biden responsible for a debt milestone that was crossed before he took office.
On Biden’s watch, the ratio of publicly held debt to GDP has actually dipped slightly below 100%. At the end of the first quarter of 2021, it stood at 99.75% of GDP. It could fluctuate in the coming months as the post-pandemic economic recovery gains steam.
The Congressional Budget Office has projected that the federal debt will dip below 100% of GDP between 2023 and 2025 before rising again to 106% in 2031, due in part to delayed spending provisions of the American Rescue Plan. That analysis assumes that all other tax and spending laws stay the same, so it doesn’t account for Biden’s plans to raise taxes to pay for some of his spending proposals and otherwise increase tax collections.
In general, it’s overly simplistic to blame, or credit, any president for changes in the federal debt.
Much of our current level of debt has been driven by mandatory spending on Social Security and Medicare, which have been increasing due to the aging of the Baby Boom generation. These expenditures have essentially been on autopilot.
For other types of spending, it takes both the president and Congress to enact legislation, and control of the White House and Congress has shifted between the parties in recent years.
The Trump tax cuts of 2017 widened the government’s annual deficits substantially, but didn’t move the debt-to-GDP ratio much, because the economy was growing in tandem with government borrowing.
Biden has proposed some substantial increases in spending to spur the economy. The American Rescue Plan Act cost $1.9 trillion and, according to the Congressional Budget Office, would increase deficits by $1.8 trillion between 2021 and 2031.
Other elements of Biden’s agenda would be offset by tax increases, largely on corporations and the wealthiest Americans. It’s not at all clear that any of Biden’s pending legislative proposals will ever be enacted, much less at the levels he initially proposed for them. His infrastructure proposal, for instance, has already been cut down in size during bipartisan negotiations.
"Obviously, trillions of dollars have been enacted under Biden," said Steve Ellis, president of Taxpayers for Common Sense. "But so, too, under Trump, Obama, and George W. Bush. Anytime someone tries to pin responsibility for the national debt on one political figure, they’ve got to take a few shortcuts with the truth."
Haley said, "The national debt is now bigger than our economy. That hasn’t happened since World War Two — and we’re in peacetime. Joe Biden is digging a hole America can never fill."
In 2020, at the end of the Trump administration, the publicly held debt did exceed 100% of GDP for the first time since World War II. It’s down since then.
A broader measure, the gross federal debt, which includes funds lent from one part of the government to another, has been above 100% of GDP since 2012, well before Biden became president.
Changes in federal debt levels are largely driven by mandatory spending beyond the direct control of any president, and much of the rest has been initiated by lawmakers and presidents from both parties. The debt-to-GDP ratio surged in 2020 because of the federal response to the pandemic and the economic contraction.
We rate the statement Half True.
Nikki Haley, Facebook post, June 28, 2021
Office of Management and Budget, Table 7.1—Federal Debt at the End of Year: 1940–2026, accessed July 1, 2021
Federal Reserve Bank of St. Louis, Federal Debt Held by the Public as Percent of Gross Domestic Product, accessed July 1, 2021
The Associate Press, AP Explains: US debt will soon exceed size of entire economy, Sept. 5 2020
Congressional Budget Office, An Update to the Budget and Economic Outlook: 2021 to 2031, July 1, 2021
Email interview with Steve Ellis, president of Taxpayers for Common Sense, July 1, 2021
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