During a Budget Committee hearing on President Biden’s $5.8 trillion Fiscal Year 2023 budget, U.S. Senator Mitt Romney (R-UT) raised the urgent need to tackle our long-term deficits. Using examples of collapsed economies around the world, like Greece and Italy, Romney warned of economic calamities that the U.S. would face if Washington continues to ignore its out-of-control spending. Romney’s statement on the President’s budget can be found here.
A transcript of Senator Romney’s exchange with Office of Management and Budget Director Shalanda Young can be found below the video.
Senator Romney: This is a slide, I’m not sure you have seen this, Mr. Chairman. I’m sure you have and other members have—the debt held by the public, not total debt. This is debt held by the public in our country, historically going back to 1900 and where we are today. The debt held by the public is approximately 100% of the GDP of the country. The last two countries that got into real trouble and had a collapse of their currency and their debt were Greece and Italy. Greece reached almost the same number, about 105% and Italy about 109% of GDP. If you look at the budget that you have provided to us, you take us to 200% debt as a percentage of the GDP. I don’t know what you all believe that does. I want to make sure the Chairman gets a chance to see that. Here’s the level of debt that Italy had. Greece had financial distress and we’re at 100% of GDP right now. According to this budget, we get to 200% of the GDP of our debt held by the public. Now, I’m a financial guy, and I know that if something like that happens, there will be economic calamity. People will stop loaning money to the United States. Interest rates will go through the roof, not going up 2%, 3%, 4%, but like what happened in Greece and Italy. At some point, there is a dramatic departure from what we’ve all experienced. I don’t know what that point is. I have asked financial people, “where does it happen, when is it that we hit the cliff?” Do you have sense of what level of debt you can’t go beyond as a percentage of GDP—debt held by the public? Do you have a sense of what that is?
OMB Director Shalanda Young: Senator, what I have is the percentage of GDP is about 106% in the 2032. So, I just want to start with the difference.
Senator Romney: This goes to 2050.
Director Young: Our budget goes to 2032.
Senator Romney: Yes, and CBO takes it all the way out.
Director Young: We believe that the way to look at debt is what it costs to service the debt. We believe that remains at historic low rate and doesn’t crowd out other investments so we don’t end up in the same situations you saw in other countries.
Senator Romney: So you just look at how much it costs and if the interest rates are low to service the debt. So what would you have said to every other country that has gotten to this level that has had an economic collapse? That they were just wrong? What happens is when people are afraid you can’t pay back the debt because of how high it is as a percentage of your economy, they start asking for a higher interest rate. When they do so, the amount you’re having to spend to service the debt gets to be back breaking. Every major civilization that’s gone down this path has ended up having their currency no longer become the reserve currency of the world and have economic collapse. We simply cannot continue on a road of adding a trillion dollars of debt every year. Let me look at the other slide. Every single year in your ten-year forecast you’re showing deficits of over a trillion dollars a year. I don’t know how when the economy is doing, well we can keep adding a trillion dollars a year to the debt without it at some point reaching calamity. And so does the Administration have a plan to deal with this? Is there some way we can stop these trillion dollar annual deficits and putting us on a road of financial distress?
Director Young: We’re doing it—$1.3 trillion in deficit deduction this year.
Senator Romney: The Democrats passed a massive COVID bill. COVID was an extraordinary event, and we passed a lot of money to help people through that. Is there any reduction in spending that the Administration has proposed other than COVID spending in this new budget?
Director Young: COVID spending costs just as much as any other spending. This president—had he not done ARP [American Rescue Plan], many economists, including Moody’s, believe we’d be in a double digit recession.
Senator Romney: I’m all in favor of COVID spending. I think ARP and the amount of money that was sent to states when states didn’t need it, and I think this number is just roundabout—California had a $60 billion surplus last year and ARP sent them $40 billion more. The waste in that and ARP, as well as other programs, is unbelievable. I know my time is up. I make the point that if you look at what you’re doing over this budget, you’re seeing that all of the increases in mandatory programs, the massive increases in mandatory programs, and if we’re ever going to get a handle on our debt, we’ll have to find a way to either increase revenue—which I don’t favor—or find a way to adjust our long-term benefits—not for current retirees—but for young people coming along. We have to be able to find a way to balance these programs or we’ll find ourselves in a heap of trouble.