Under Clinton or Trump, more debt, higher deficits on the way

Nasty election fight brewing

Presidential candidates may talk a good game when it comes to fiscal responsibility, but the reality come January is likely to be a lot messier.

Future projections for U.S. debt and deficits already are bleak — by 2025 the deficit is likely to exceed $1 trillion and total federal debt will be more than $29 trillion, according to Congressional Budget Office projections.

However, plans from both Hillary Clinton and Donald Trump, the likely respective nominees for the Democrat and Republican parties, offer little hope that conditions will turn around under the next administration.

"Both candidates also have bold ideas on tax reform that might reshape the character of the domestic tax landscape," Citigroup economists said in a report for clients. "But despite comprehensive attempts by tax policy think tanks to determine the extent to which Trump's and Clinton's proposals might either reduce or increase tax revenues, it is unclear which candidate might successfully neutralize the looming threat of outsized Federal debt and deficits over the next decade."

Democratic presidential candidate Hillary Clinton (L) and Republican U.S. presidential candidate Donald Trump (R).
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As things stand, the noise has quieted some at least on the deficit front. The post-recession economic recovery has brought the budget shortfall down to $455 billion projected for 2016 from a peak of $1.4 trillion in 2009 amid the global financial crisis. The current deficit is the equivalent of 2.4 percent of gross domestic product.

The numbers start to change in the years ahead, though. If the projection for a trillion-dollar deficit by 2025 pans out, that would equate to 3.8 percent of GDP, according to the CBO.

The debt picture gets correspondingly worse. The total current debt of $19.3 trillion is 106 percent of GDP, with the public's share of $13.9 trillion amounting to 75.4 percent. However, those numbers respectively shoot to $29.1 trillion and $23.7 trillion in 2026, with the latter and more meaningful of the two numbers rising to 85.6 percent of GDP.

Dealing with that burden will require a deft Treasury secretary who can help guide the next chief executive on how to keep the debt and deficits dilemma from spiraling out of control.

"The leadership of the U.S. Treasury Department under the next Administration may have surprisingly profound implications for the global economy and U.S. fiscal policy," Citi's experts wrote. "Unfortunately, limited specifics on proposals and the shifting nature of campaign rhetoric make it difficult to determine the true outcomes of sensitive issues including international trade policy and tax reform."

The economists do note two names that have been bandied about: For Clinton, BlackRock CEO Laurence Fink, and, for Trump, billionaire activist investor Carl Icahn. Neither has expressed direct interest publicly, and they did not respond to CNBC.com requests for comment. Of the two, Fink would be the more likely Cabinet member as he's made it clear in the past that he would like to serve.

Whoever gets the position will have a tough job.

Hillary Clinton, former Secretary of State and 2016 Democratic presidential candidate, speaks during a campaign event in Louisville, Kentucky, U.S., on Tuesday, May 10, 2016.
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Both Trump and Clinton have fiscal plans that are problematic when it comes to debt and deficit reduction. In fact, multiple think tanks estimate Trump's proposals will dramatically decrease revenue. The Tax Policy Center estimates Trump's plans would cut revenue by $9.5 trillion over a decade; Clinton's, conversely, would increase revenue by $1.1 trillion, but that would be offset almost to the dollar by spending.

Trump contends his other economic proposals would use robust economic growth to more than offset the revenue decline. He also has discussed buying back Treasurys at reduced value to cut the debt, though such a plan would face multiple roadblocks and likely would do little to reduce the total debt load.

Clinton's critics say her penchant for taxing and spending would choke off growth and result in debt consistent with the doubling of the national IOU under President Barack Obama.

Taxpayers have been footing the bill in a big way for all the debt and deficit spending. During the Obama years alone, the cost to service the debt has been about $3.1 trillion, according to Treasury data.

"The White House, Congress, and the presidential candidates likely all acknowledge that the days of shrinking federal government deficits probably are over," the Citigroup team said. "Unfortunately, with just six months to go before the election, we see limited evidence from the leading presidential hopefuls that their policies may avert or even ameliorate the United States' looming federal budget deficit and debt crisis."