Another CBO budget update, another reminder of the gargantuan disconnect between what dominates the news cycles and what our nation’s major public policy problems really are.
Here is the bottom line. Our nation’s fiscal trajectory is unsustainable. The fallout will disproportionately impact younger Americans. Congress knows about this. But they refuse to talk about it because the solutions are neither easy nor popular. The only thing more severe than our budget deficit is our leadership one.
What are the numbers?
Congress makes the Fyre Festival look like a well-oiled machine. Under current law, the federal government is projected to spend $57.8 trillion over the next 10 years. It expects to collect $46.2 trillion in revenues over that time period, leaving a $11.6 trillion deficit gap – or over $1 trillion in borrowing every single year. In total, our national debt will be $34 trillion by the end of the decade and our interest costs on that debt will be nearly $1 trillion per year.
Keep in mind, this is all happening with a healthy economy and record low unemployment. In the last 50 years, when unemployment is as low as it is now, deficits averaged .7% of GDP. This year’s deficit will be SIX TIMES that amount.
Isn’t this all the tax cuts fault?
The tax cuts were completely irresponsible. From a policy perspective, they worsened our already abysmal fiscal trajectory. Politically, they delegitimized an entire party from being taken seriously when they talk about the importance of shoring up our nation’s finances.
But, even if you assume that the tax cuts will cost the full projected $1.5 trillion over the next decade – then they are responsible for 12% of the debt increase over the next decade.
Impactful, yes. Wholly responsible. Not even close.
What’s this about spending on the elderly?
Baby boomers are retiring at a rate of 10,000 people per day. In 10 years, people over the age of 65 will comprise 20% of the US population. Spending on this group will account for HALF of all non-interest spending in 2029 – up from 33% in 2005.
This spending is driven by larger Social Security and Medicare costs which are projected to jump from $1.3 trillion this year to $2.7 trillion in 2029 – an increase of $140 billion every single year. That is the equivalent of adding two new Departments of Defense in a single decade!
CBO does point out that one day younger Americans can enjoy the same benefits of Social Security and Medicare. But the trust funds for Social Security will be exhausted in 2032 and the trust fund for Medicare will be exhausted in 2029. If nothing changes, it’s unrealistic to expect that we’ll reap the same benefits.
This is all happening on auto-pilot – which means Congress must actively step into to sustain and reform these programs.
What is Congress likely to do about this mess?
Amazingly, they are likely to take this car careening towards a cliff and step on the accelerator.
The CBO outlook is based on current law. That current law baseline assumes that many middle-class tax cuts will expire in 2025 as called for in the tax bill. It also assumes that Congress will cut defense and non-defense spending by 10% next year. Finally, it assumes that Congress will let an unpopular health care insurance tax that they have delayed for a decade go into effect.
Its possible, even likely, that Congress will reverse all three of those policies, exacerbating our fiscal situation even more. If that were to happen, CBO projects that deficits would be $3.8 trillion higher than the current projections.
Why does it matter?
The exploding growth in federal debt is dangerous for multiple reasons.
- Whether you are a big government progressive or a limited government conservative – spending on mandatory programs and interest costs is going to eliminate the ability to expand federal programs or cut taxes. The growth in debt significantly increases interest payments on the debt – directing more and more tax dollars to pay off the unpaid for spending of the past. Instead of spending on education, housing, defense, foreign aid, infrastructure, or lower taxes, younger Americans’ tax dollars are going to cover these irresponsible excesses.
- National debt reduces national savings and thus productivity, economic growth and ultimately jobs and wages. Instead of money going towards productive investment, more money is sunk into government borrowing which goes for current consumption rather than long-term productive investments.
- Whenever we hit the next recession, the federal government will not have as much room to borrow to invest in the sagging economy.
- Our treasury holders can one decide that our debt is unsustainable and cause a fiscal crisis.
What can I do about this mess?
Like we said at the beginning, the only thing deeper than our budget deficit is our leadership deficit. Over the next two years we will have a President that has sworn not to touch the major drivers of our debt pitted against an army of Democratic primary candidates that will try to outdo each other with bigger and bigger federal spending programs without any way to pay for them.
Don’t buy it. Instead, demand accountability and a future that is full of opportunity rather than imperiled by decades of overpromising politicians.