--:-- Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson.
--:-- Jessica Mendoza: And I'm Jessica Mendoza. It's Thursday, October 10th.
--:-- Ryan Knutson: On the campaign trail, presidential candidates Kamala Harris and Donald Trump have been making some big promises.
--:-- Jessica Mendoza: My administration will provide first-time homebuyers with $25,000. And getting gasoline below $2 a gallon. We will be able to build our military again.
--:-- Richard Rubin: The United States will provide more than $1.5 billion to address Ukraine's humanitarian and energy needs. My plan will leave the typical family with many thousands of dollars, more than they have right now. Affordable child care, affordable elder care, and paid family leave.
--:-- Ryan Knutson: We will end all taxes on overtime. No tax on tips. A $50,000 tax deduction for startup businesses. All these promises cost money. More money than the U.S. brings in.
--:-- Jessica Mendoza: So the starting place that we're at is in the red, a place where we're spending more money than we're taking in. And both candidates are pushing in the direction of widening that gap even further.
--:-- Richard Rubin: That's our colleague Richard Rubin. He's talking about the budget deficit, which currently stands at $1.8 trillion, meaning last fiscal year, the U.S. spent $1.8 trillion more than it collected in revenue.
--:-- Jessica Mendoza: But the deficit isn't a priority for the presidential candidates. And yet it does matter.
--:-- Richard Rubin: Rich says eventually, if it keeps growing, the U.S. is going to have to deal with it. They're not really talking much about it, but it's kind of taking a backseat to other issues and other priorities that voters and candidates have.
--:-- Ryan Knutson: And so that sort of raises the question of like, when this becomes a real problem that then outweighs some of the other things that politicians and policymakers want to do, which is lower taxes, provide benefits, give people what they want.
--:-- Jessica Mendoza: Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza.
--:-- Richard Rubin: So let's break this down. What even is the deficit?
--:-- Jessica Mendoza: Okay, great question. The deficit is the difference in any one year between revenue, what the government takes in largely with taxes, and spending, what it spends on various programs, Social Security, Medicare, National Defense, all that.
--:-- Richard Rubin: And then the difference is the deficit. That difference is that $1.8 trillion shortfall we mentioned earlier.
--:-- Jessica Mendoza: So imagine you're at a big economic party. You can think of it like a bag of popcorn, right? Like say like, okay, you're having popcorn at the house and you're like, all right, I'm going to like cook up a bag of popcorn and I'm going to pour it all into the bowl. And that's the taxes that we collected for the year, right? We collected a whole bag of popcorn.
--:-- Richard Rubin: So you've got all the kernels of revenue popping. More taxes, more popping. Dump them into the bowl. Bowl looks nice and full.
--:-- Jessica Mendoza: But then? Like, everyone, like, reaches in and, like, takes some popcorn. You know how that goes when you're having people over. Everyone kind of reaches in.
--:-- Richard Rubin: And, like, imagine, like, one person is Social Security. One person is Medicare. One person is, you know, the FDA. Another is military spending. And then there's unemployment benefits, veterans benefits, roads, infrastructure. The list goes on.
--:-- Jessica Mendoza: Now, that bowl is looking empty. But your guests are still hungry. So you have to borrow more popcorn from a popcorn bank or from friends.
--:-- Richard Rubin: And it's extra buttery, dripping with interest. So are you like going to your neighbors to ask for more popcorn? Is that what's happening?
--:-- Jessica Mendoza: Well, that's what it is, right? Eventually, your neighbor is going to be like, yeah, so you're going to have to give me back like more popcorn next year because like I lent you that.
--:-- Richard Rubin: And the U.S. government can do that. And last year, the U.S. needed to borrow a $1.8 trillion bag of popcorn, an amount roughly equal to the GDP of Brazil.
--:-- Jessica Mendoza: So why should the U.S. care about deficits? It's because when they get too high, they could affect interest rates and the country's ability to spend more and borrow more.
--:-- Richard Rubin: Big deficits could also erode trust in the dollar as a currency around the world.
--:-- Jessica Mendoza: So the more the federal government spends on interest every year, the harder it is for the federal government to find money to implement a new program, even a new productive investment in infrastructure or something.
--:-- Richard Rubin: It becomes a limiting factor because so much of the money every year is—so much of the popcorn every year is pre-committed to interest.
--:-- Jessica Mendoza: And of course, deficit after deficit compounds. And all those deficits add up to America's national debt.
--:-- Richard Rubin: Right now, the country's publicly held national debt is around $28 trillion.
--:-- Jessica Mendoza: Can you tell us the story of how we got to years of such high deficits?
--:-- Richard Rubin: Yeah, so there's one important past episode, which is World War II. World War II, big national emergency. We went out and borrowed a bunch of money. That was like the big burst of deficits that we had, you know, 80 years ago.
--:-- Jessica Mendoza: After World War II, deficits declined, though they still existed. All but seven years in the next few decades had deficits. But by the 1980s, deficits were creeping back up.
--:-- Richard Rubin: And it gave rise to deficit hawks, people who made reducing the deficit a big part of their political agenda. The deficit was such an important political issue at various points in the 90s.
--:-- Jessica Mendoza: You had Ross Perot, who's this wealthy businessman from Texas, who ran his presidential campaigns and did quite well in 1992 and 1996, based in part on trade and in part on really talking a lot about reducing the federal budget deficit.
--:-- Richard Rubin: We're $4.1 trillion in debt. That's a staggering burden to pass to our children. It's unconscionable.
--:-- Jessica Mendoza: And then what happened in the 90s really was, you know, a series of events that took us from deficits to surpluses.
--:-- Richard Rubin: Then the Democrats raised taxes under President Clinton in 1993. The deficit used to have 11 zeros. Now it will have no zeros.
--:-- Jessica Mendoza: In fact, we're going to be in surplus. The government also reduced spending, which helped bring down the deficit.
--:-- Richard Rubin: And on top of that, the economy was roaring. You had baby boomers all in the workforce. You had a productivity boom from the introduction and proliferation of personal computers.
--:-- Jessica Mendoza: Through a computer network called Internet The world is more productive now
--:-- Richard Rubin: And so where you ended up is surpluses. And literally to the point where right around 2000 2001 there were projections that the U.S. would completely pay off its debt.
--:-- Jessica Mendoza: OK, so we had a budget surplus for a few years, but then budget deficits came back.
--:-- Richard Rubin: What changed? I think three big things happened. One was a series of emergencies. 9-11.
--:-- Jessica Mendoza: Good afternoon. On my orders, the United States military has begun strikes against al-Qaeda terrorist training camps.
--:-- Richard Rubin: The 2007-2009 financial crisis. With plunging home prices and rising foreclosures, the housing problem snowballed into an economic crisis that we haven't seen since the Great Depression.
--:-- Jessica Mendoza: Breaking news concerns over the coronavirus outbreak, and once again, they are affecting the stock market. Look at that right there.
--:-- Richard Rubin: All of those, the government stepped in and spent a bunch of money, whether on defense or on sending checks out to people or propping up financial institutions.
--:-- Jessica Mendoza: All of those were sort of deemed worth borrowing for, basically.
--:-- Richard Rubin: A couple other expensive line items, Social Security and Medicare, because all those baby boomers who were so productive in the 90s were retiring.
--:-- Jessica Mendoza: That spending also came with a suite of tax cuts that decreased government revenue, first under George W. Bush. and then those cuts were extended under Barack Obama.
--:-- Richard Rubin: And then Trump introduced more tax cuts, which brings us to where we are today, with a budget deficit bigger than any we've seen since World War II.
--:-- Jessica Mendoza: And looking ahead to either a second Trump term or a Harris presidency, it's likely to get worse. That's next.
--:-- Richard Rubin: This episode is brought to you by Walmart. Did you know that Walmart is one of Fortune 100's best companies to work for in 2025?
--:-- Jessica Mendoza: It's no surprise. Walmart is investing $1 billion in training and development to help associates build lasting careers with or without a degree.
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--:-- Jessica Mendoza: This episode is brought to you by AARP. They have reskilling courses and career tools to help your income live as long as you do.
--:-- Richard Rubin: The younger you are, the more you need AARP. Learn more at aarp.org slash skills.
--:-- Jessica Mendoza: Neither Donald Trump nor Kamala Harris has presented a concrete, detailed plan for significantly reducing the deficit.
--:-- Richard Rubin: Both their economic plans would probably deepen the deficit.
--:-- Jessica Mendoza: I asked Rich to parse what we know about each candidate's budget. We started with Trump, who has a lot of tax cuts planned.
--:-- Richard Rubin: So you're seeing former President Trump out there saying, extend all the tax cuts that we did in 2017 and no tax on tips, no tax on overtime pay, no tax on Social Security benefits.
--:-- Jessica Mendoza: He's got a bunch of those promises out there. At the same time, Trump is also proposing plans that cost a lot of money.
--:-- Richard Rubin: And he's talked about some spending increases on a missile defense program and his mass deportation program.
--:-- Jessica Mendoza: So those are among the largest things that he's talking about that would increase deficits.
--:-- Richard Rubin: To pay for all these programs and tax cuts, Trump says he'll make some, quote, drastic reforms, including cutting clean energy subsidies and downsizing some government agencies.
--:-- Jessica Mendoza: But mostly, he's relying on one key idea. Actually, I consider it one of the most beautiful things I've ever seen. The word tariff, I love it. I think it's beautiful.
--:-- Richard Rubin: Tariffs are basically taxes on imported goods. But all this, according to many economists, still doesn't come close to balancing the budget.
--:-- Jessica Mendoza: And this week, a nonpartisan group called the Committee for a Responsible Federal Budget came out with some eye-popping estimates.
--:-- Richard Rubin: Do we have a sense of how much all of his policies might cost and how much of that is going to be offset by some of his proposed, some of the ways that he's proposing to pay for that?
--:-- Jessica Mendoza: This is an estimate, but it's $7.5 trillion in additional deficits over the next decade.
--:-- Richard Rubin: And remember, if Congress does nothing, deficits increase by $22 trillion. So this is $22 trillion and then another $7.5 trillion on top of that.
--:-- Jessica Mendoza: In a statement a Trump senior advisor credited the former president 2017 tax cuts for strong economic growth
--:-- Jessica Mendoza: And what about Kamala Harris? With Vice President Harris, it's a little bit different. She's also talking about extending almost all of the tax cuts that are expiring.
--:-- Richard Rubin: She's talking about providing new benefits, a new expanded child tax credit. And she's talking about, even as recently as this week, talking about expanding Medicare coverage for long-term home care.
--:-- Jessica Mendoza: Harris is also offering breaks for first-time homebuyers and small businesses. And she's pledging to deliver some relief on student and medical debt.
--:-- Richard Rubin: As for how she'd pay for all this? She's proposed higher taxes on corporations, taking the corporate tax rate from 21 to 28, higher taxes on high-income households, capital gains, those kinds of things.
--:-- Jessica Mendoza: Yet again, it doesn't add up. The same nonpartisan group that studied Trump's proposal, the CRFB, also ran the numbers on Harris's plan.
--:-- Richard Rubin: And they estimate that Harris's proposals would add $3.5 trillion to the deficit over the next decade.
--:-- Jessica Mendoza: So significantly less than where Trump is. Trump's proposals would raise deficits by $7.5 trillion. And she's less than half of what he's talking about there.
--:-- Richard Rubin: But she's made a lot of promises. And if she wants to prevent the deficit from expanding, she's going to have to either pare back some of those policies or find more ways to pay for them.
--:-- Jessica Mendoza: Harris's campaign disagreed with the CRFB's estimates. A representative said her plan would reduce the deficit.
--:-- Jessica Mendoza: Harris and Trump aren't talking about the deficit this year because it doesn't really score them any political points.
--:-- Richard Rubin: Americans like programs like Social Security and Medicare. Many Americans like having a strong military.
--:-- Jessica Mendoza: There's a sense that these things are good for them and for the country. Trying to slash the deficit would likely mean trims to these programs.
--:-- Richard Rubin: It's called austerity, and it is not popular.
--:-- Jessica Mendoza: Like when, you know, Trump goes out and says no tax on tips and everybody cheers.
--:-- Richard Rubin: And Harris-Kazatin says we're going to give $6,000 for newborns. They probably won't get the same kind of applause.
--:-- Jessica Mendoza: Right. If you say we're going to reduce projected deficits by $8 to $10 trillion over the next decade to stabilize our debt as a share of GDP, that is not an applause line.
--:-- Richard Rubin: If the government is bringing in less money than it's spending, it seems like at some point something will have to give.
--:-- Jessica Mendoza: Do we have a sense of when that might happen or how?
--:-- Richard Rubin: So that's the thing is we don't know. Like when you talk to economists affiliated with both parties about this, they really frame it in terms of risk as, you know, the larger the deficit gets, the more risk we run that there's a problem, an economic burden from that that is, you know, damaging to us.
--:-- Jessica Mendoza: But the repo man is not going to come. They're not going to like, you know, take it like no one's going to come like uproot the Washington Monument and take it away because we haven't paid the bills.
--:-- Richard Rubin: Like, that's just not the way this works for, you know, for government.
--:-- Jessica Mendoza: So it's just a different kind of situation. It's hard to think about what that looks like for us.
--:-- Richard Rubin: It's hard to notice it, but we get a lot of benefits from being as big and powerful economically as we are.
--:-- Jessica Mendoza: And if the higher deficits lead to a point where those benefits go away, that's a real concern.
--:-- Richard Rubin: One of the biggest concerns that's on the horizon is that more Americans are getting older.
--:-- Jessica Mendoza: And that's going to put more pressure on the federal budget.
--:-- Richard Rubin: In about eight to ten years, you'll have the point where Social Security doesn't have enough money, either both coming in and from accumulated funds from the past, to pay full benefits.
--:-- Jessica Mendoza: And so Congress will have to decide whether it would allow benefit cuts to happen automatically or to backfill that somehow.
--:-- Richard Rubin: But all of these things have tradeoffs. They have trade-offs against each other, against the deficit, against getting re-elected.
--:-- Jessica Mendoza: And unless you get magic growth that happens, anything you do to reduce the deficit, the thing you're trying to solve, you're going to cause issues someplace else.
--:-- Richard Rubin: And so that's what I just keep coming back to is there's no free popcorn.
--:-- Jessica Mendoza: That's all for today, Thursday, October 10th. The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Richard Rubin: If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon.
--:-- Jessica Mendoza: Thanks for listening. See you tomorrow.
