Interest on the debt now costs more than military spending
Neither party’s closing argument in Tuesday’s midterm elections says much about the federal debt. Democratic ads attack on the Iran war, gas prices and alleged corruption; Republican ads warn about socialism, transgender athletes and tax hikes. Just 30 campaign ads this year mention the debt or deficit, down from 140 during the 2018 midterms, according to AdImpact, an ad tracking firm — a total that ranks the topic 52nd among subjects in this year’s campaigns.
The quiet is not for lack of material. Publicly held federal debt reached 100% of gross domestic product for the first time in 80 years in the fiscal year that ended Sept. 30 — more than triple its 2001 level — and analysts expect the post-World War II record of 106% to fall within a few years. The annual deficit landed just shy of $2 trillion, or 6.2% of GDP, a seventh consecutive year above 5% and the longest such streak in at least a century, unprecedented outside wars, recessions or emergencies. Interest on the debt has more than doubled in four years and now costs more than military spending.
There is no sign of market panic yet, but periodic spasms in the bond market — including a recent jump in Treasury yields to 24-year highs — hint at the stakes. In an extreme scenario, investors who conclude the U.S. will never rein in its borrowing, or would unleash inflation to repay the debt in devalued dollars, demand dramatically higher interest rates, squeezing the economy; as mounting interest charges widen the deficit further, a debt spiral could take hold. In a less extreme scenario, the relentless rise in interest, pension and health care costs for the elderly squeezes other programs, making it harder to find money for everything from food inspection to national parks. Social Security is projected to become insolvent in 2032, and Congress may lack the fiscal cushion to respond when unexpected crises arrive.
France shows how a reckoning can arrive through politics first. Its debts and deficits are in the same league as America’s, though its economy is weaker, and attempts to curb spending have brought down four prime ministers in three years. As investors lost hope of a fix, they began dumping French bonds, sending yields soaring and slowing an already weak economy, while violent street protests push politicians to spend more, not less.
Washington’s fiscal hawks — the leaders concerned about debt and prepared to curb red ink — hit a wall of indifference, then retired, lost elections, changed the subject or became doves. Former South Carolina Gov. Mark Sanford tried to resurrect his political career this summer in a Republican primary for a Senate seat with ads warning that the debt was reaching a “tipping point” that could crush the economy and even risk the republic. Sanford said he thought he was making headway explaining the connection between federal debt and household costs, but acknowledged it is a hard argument. “There’s a more complex political sale than, ‘There’s a transgender whatever walking into your bathroom,’” he said.
Rep. Steny Hoyer, D-Md., who is retiring after nearly 46 years in the House and stints as majority leader, recalled that in the 1980s and 1990s lawmakers believed reducing red ink could help them in their next campaigns. Those days are long gone. “Nobody asks me about the debt,” Hoyer said. “I don’t think they ask any other (House) members about the debt.”
The pattern extends across the rich world, where foreign leaders are indifferent or paralyzed. Budget deficits in advanced economies are projected to average 5.2% of GDP this year, up from 2.6% a decade earlier, according to International Monetary Fund data, and gross public debt stands near 110% of GDP, the highest sustained level since the Napoleonic wars in Europe in the early 1800s. Britain’s debt has reached its highest sustained levels since the early 1960s, with bond yields at their highest since the late 1990s. Japan is rolling out tax cuts despite rising yields and enormous government debt. Even Germany, with a culture of prudence shaped by hyperinflation and Nazism, has loosened its debt rules to borrow more for defense.
Several forces combined to sideline the deficit hawks. A series of crises, coupled with rising pension and medical costs for aging populations, ratcheted debts ever higher. Financial markets never revolted against those debts, which stripped the hawks’ warnings of credibility and pushed prominent economists to rethink the conventional wisdom on debt. Freed from the fear of debt and voter backlash, politicians dropped the obligation to pay for agendas of expanded government and lower taxes. Joseph Thorndike, an American historian of tax and fiscal policy, argues that American politicians began losing their sense of shame about deficits particularly in the 1970s and 1980s, after eras in which presidents and Congresses usually borrowed only during wars or economic downturns and went to great pains to reassure voters the borrowing was temporary. “Once you loosen the norm a little bit, it’s only a matter of time until it frays completely,” he said.
The Sept. 11, 2001, attacks kicked off a run of once-a-century crises — the wars in Iraq and Afghanistan, the global financial crisis, the coronavirus pandemic, Russia’s invasion of Ukraine — and the U.S. met each with more borrowing and spending. That may well have been prudent: rich countries turned out able to borrow far more than many fiscally conservative economists believed without triggering the sort of crises that hit Greece and Argentina. Britain’s Conservatives became for some on the left a cautionary tale in the perils of caring too much about debt: spooked by the Greek debt crisis, they embraced austerity — higher taxes and spending cuts — in 2010, which the Bank of England’s former chief economist called “an act of economic vandalism” that may have contributed to the anxieties that led to Brexit. Barack Obama raised taxes to pay for Obamacare after a stimulus bill early in his presidency and struck a 2011 deal with Republicans to pare back spending; many Democrats thought he should have resisted the austerity push harder and kept borrowing higher, which they believed might have prevented the slow growth and economic anxiety that helped bring Donald Trump to power.
As debts climbed in the 2010s, the crisis the hawks warned of never materialized, largely because central banks held interest rates near zero and bought government bonds. Larry Summers argued the U.S. faced “secular stagnation” and should boost demand through government spending. Olivier Blanchard, the International Monetary Fund’s former chief economist, told the American Economic Association in 2019 that rich countries were underestimating how much debt they could carry so long as interest rates remained below the rate of nominal economic growth. Blanchard now says he went too far. “The very low rates—the negative r-g for a long time—probably created a false sense of security. I have to plead guilty here,” he said. “I thought secular stagnation would be, if not secular, at least longer-lasting than it turned out to be.”
By the time economists changed their tune, politicians were no longer listening. Fearful of repeating their Obama-era slow recovery, Democrats went big in early 2021, pushing through a $1.9 trillion law that contributed to the postpandemic inflation spike. In 2025, Republicans took power and cut spending — while cutting taxes even more. Jürgen Stark, a former chief economist at the European Central Bank, said central bankers’ long stretch of ultralow interest rates, government bond buying and, in Europe, their transformation into lenders of last resort taught politicians and the public that fiscal imprudence has no consequences. “Once the bad lessons are learned, they’re impossible to unlearn,” he said.
The underlying arithmetic favored borrowing. Federal spending has risen above 23% of GDP from about 18% in the 1960s, while revenues fluctuate but sit around 17%, according to Congressional Budget Office data. Raising spending proved easier than raising the taxes to pay for it, debt filled the gap, and voters on the left and the right got more spending and lower taxes at once.
The two parties traded orthodoxies along the way. A budget deal with Democrats that raised taxes helped cost President George H.W. Bush re-election in 1992 and splintered the GOP, which adopted a “no net tax increases, ever” posture. Republicans still cared about deficits, but they cared more about keeping taxes low and reducing them further. When Republicans pressed to curb programs for the elderly that threatened to consume future budgets, they paid a political price: Democrats built attack ads out of George W. Bush’s 2005 plan for partially private Social Security accounts and Republican presidential candidate Mitt Romney’s 2012 pledge to rein in Medicare. In 2016, Trump mirrored the Democratic position and said he would oppose any cuts to Social Security or Medicare, the government’s largest programs, and the two programs have barely merited discussion in the past three presidential campaigns, because there was little if any daylight between the candidates.
“Trump is the apex populist,” said Paul Ryan, who was Romney’s vice presidential running mate in 2012 and House speaker during Trump’s first term. “He just didn’t want to do things that were considered unpopular.” Ryan said Trump’s rise signaled the end of the Republican Party’s Reagan-era fiscal consensus. As Republicans moved toward Democrats on spending, Democrats moved toward Republicans on taxes, culminating in President Joe Biden’s promise that no one making under $400,000 a year would pay a penny more to the Treasury — leaving voters a choice between a party that won’t raise taxes on 100% of Americans and one that won’t raise taxes on 98% of them.
This year’s campaign season features expensive promises on both sides. Trump has pledged a $5,000 check to every adult if Republicans win the midterms, at an estimated cost of $1.2 trillion; Democrats call for reversing Medicaid cuts, reinstating Obamacare subsidies and repealing tariffs. With fiscal hawks largely gone from the halls of power, it is not clear who or what will bring them back. “Voters say they care about the deficit, but very, very few will accept higher taxes or spending cuts to get there,” said Jessica Riedl, a longtime Republican budget aide who is now an analyst at the Brookings Institution. “The feeling is very clearly that all fiscal sacrifice should be borne by someone else—the rich, foreigners, immigrants, the Defense Department.”
France’s own politics point the same direction: the groups the Journal describes as the far right and the far left have repeatedly voted against spending cuts. Marine Le Pen, the leading candidate for next year’s presidential election, vows to lower the retirement age to 60, while the solution offered by Jean-Luc Mélenchon is to take the debt held by the central bank and “throw it in the fire.” Perhaps only if financial markets wreak widespread damage will austerity find a receptive audience among voters: Greece, Sweden and Canada run lower deficits than their peers because they suffered traumatic debt crises within the living memory of most voters and politicians, and Americans were far more worried about the debt in the 1980s and 1990s after double-digit inflation and mortgage rates they did not want to repeat. The U.S. also carries built-in defenses — the world’s reserve currency, a debt regarded as the safest asset in a storm, and growth that is robust and may be turbocharged by AI, which would make the debt easier to bear. Others are not as fortunate. “You don’t win an election by arguing we have to lower our debt to GDP,” said Rupert Harrison, a former chief of staff in Britain’s Treasury who is now a senior adviser at Pimco, one of the world’s largest owners of bonds; winning campaigns, he said, means turning the fiscal argument into costs voters feel, such as more expensive mortgages.
Michael Faulkender, a University of Maryland finance professor who was a senior Treasury Department official during both Trump administrations, said U.S. leaders may move if another G-7 country suffers enough pain first. “Is it going to be Great Britain or is it going to be France that fails first? And is that finally going to be the wake-up call?” he said. “I hope we can learn from somebody else going through that scenario as opposed to us having to live it.” In the Journal’s analysis, the politics are too toxic for one party to handle. But should conditions change, templates for politically viable deficit reduction already exist: the 1983 Social Security deal between President Ronald Reagan and Democratic Speaker Tip O’Neill, the budget agreements between President Bill Clinton and Republican Speaker Newt Gingrich in the 1990s, and the talks between Obama and Republican Speaker John Boehner that almost succeeded in the 2010s. The 2032 Social Security insolvency deadline could catalyze action. “You gotta have both parties committed to the objective, and both parties take the blame,” Hoyer said. “Because there will be blame.”