One of the most important documents for younger Americans to know about is also one of the longest, dryest, and most boring to read. Go figure. It is the Congressional Budget Office’s (CBO) 10-year budget and economic outlook. The latest edition, released yesterday, is the first update since Republicans in Washington went on a tax cut and spending spree. The projections before were awful. Now they are abysmal.
It’s not just the additional ten-plus trillion in debt accumulation over the next decade, but that there is not a single plan by Congress to address our out-of-control debt. There isn’t even a political party that seems to care about it.
Why? Because the choices to address our massive fiscal problems do not poll well. And winning power in the next election is more important than addressing the fiscal mess we are in, let alone acknowledging the fundamental shift in how our country’s resources are allotted.
In other words, “deficits don’t matter”…politically.
But it will matter a great deal when millennials are trying to run a business, raise a family, or for the few that are elected to run the country one day. As these projection show in no-uncertain terms, the resources of our future will be used to pay for the unaffordable promises and massive debts being made and ignored today.
Here are the SparkNotes.
The shortest version is…younger Americans are screwed.
Ushering in a New Era of Permanent Trillion deficits
By 2020, the federal government will begin running permanent trillion-dollar annual deficit. Unlike in 2009-2012, when our country was exiting a historically deep economic downturn, these massive deficits are happening under normal economic conditions. These aren’t unseen emergency deficits. These 10 digit deficits are foreseen by our leaders in Washington and are the stamp of active hypocrisy and ignorance.
A Decade of Failed Leadership Culminates in the 2018 Deficit being $1 trillion More than the Original Projection.
Before getting to the looming threats of the upcoming decade, let’s put a finer on the policy failures of the prior decade. In 2008, CBO’s 10-year Budget Projection predicted that 2018 would see a $223 billion surplus (see below). Surplus! Instead, we will actually run a $804 billion deficit. Some of that can be attributed to the aftermath of the recession – though it has been nearly a decade. The path of the 2018 deficit projection over the years tells a tale of Congress always opting for the easy way out on every decision – borrow more and put it on the next generation’s tab.
The Price of Republican Hypocrisy: $1.6 trillion
After running on a platform of fixing our nation’s fiscal problems for years and years, the American people finally put them in charge of the House, the Senate, and the White House. In return, the Republican party went on an epic spending spree coupled with massive, unpaid-for, tax cuts.
CBO estimates that policy changes made by Republicans over the last year will result in additional $1.6 trillion in cumulative deficits over the next 10 years – totaling $11.7 trillion instead of $10.1 trillion. This year’s deficit is projected to be $242 billion higher due to recent policy changes (from $563 billion to $804 billion).
But it is likely to be even worse…
CBO makes their projections based on current law – which assumes that the tax cuts on individuals will expire in 2025 and that the discretionary spending will go back to the levels that they were before the recent two-year budget blow-out deal. These are actions that many members are already predicting and hoping will not happen – which means even more debt.
In the scenario where the tax cuts and spending increases are extended, CBO projects the cumulative deficit would be $2.6 trillion worse. That would mean a total of $15 trillion in deficits over the next 10 years (rather than $10 trillion) – taking our total debt-to-gdp levels to stratospheric 105 percent by 2028. As CBO points out, “the pressures contributing to that rise would accelerate and push debt up even more sharply in subsequent decades.” AKA would be even worse for younger generations.
The Effects of Democratic Ignorance: Bankrupt Trust Funds Within the Decade
The recency of Republican hypocrisy seems to put the fault of our fiscal woes squarely on them – but Democrats should share the blame. The deficits over the next 10 years were already set to increase by $10 trillion – primarily driven by the growing level of resources going towards entitlements caused by the massive retirement wave of baby boomers. Yet, Democratic leaders have been dishonest about these facts. Instead they use any attempts to curtail the exploding spending growth (not cut, just slow the growth) as a political cudgel in attempt to win elections.
Over the next 10 years, the retirement portion of Social Security spending is projected to double ($796 billion to $1.6 trillion) while the trust fund will be depleted by half. Medicare spending is also projected to double ($702 billion to $1.5 trillion) while the Hospital Insurance trust fund (which partially funds Medicare) will be completely depleted by 2029. Democratic party leaders want to expand benefits – which means a faster and larger shift of resources from the young to the old. Spending on the partisan and acrimonious Affordable Care Act is also growing at a faster rate than revenues – contributing to the debt buildup.
The Three Fastest Growing Spending Items Show the Fundamental Shift of Our Nation’s Priorities
With minimal debate, we are seeing a fundamental shift on how our nation spends its resources. Over the next 10 years, CBO projects that spending will increase from $3.9 trillion to $7 trillion (20.8 percent of GDP to 23.6 percent of GDP by 2028). It’s not just the increase in spending that is alarming – but the composition of it. Over this decade, the three fastest growing spending categories are all for mandatory spending items: interest payments on the debt (the cost of our fiscal mess), major health care programs (due to aging population and rising health care costs), and Social Security (due to the baby boomer retirement wave).
The only category that is projected to take a large decrease is discretionary spending, which is the funds that Congress has control over that go towards programs that can improve the safety, quality, and economic outlook of the country (think: defense, infrastructure, education, research).
In 1968, 66 percent of spending went to discretionary programs. In 2008, 37 percent of spending was discretionary. In 2018, 30 percent. In 10 years, it will be down to 22 percent. That means instead of Congress deciding where over 66 percent of the budget goes, like in 1968, in 10 years Congress will only decide where 22 percent of our budget goes.
Not only is government spending and debt exploding, but these auto-piloted funds are directed towards older generations and is occurring without much debate or a voice representing younger Americans. By the time younger generations are in charge, all of our tax dollars will have already been directed towards promises and paybacks made by legislators to a different generation in a different era.
CBO outlines Four Dangers From Debt Growing to be the Size of the Entire Economy
These are not just mysterious numbers that stay in government accounting books. They will show up in all of our lives – and disproportionately in the lives of coming generations that will face most of the costs and minimal benefits. CBO outlines four dangers of the debt buildup:
- Spending on interest payments will triple – that is money that goes to pay bondholders for the right to borrow. The largest increase in spending is interest payments – which are projected to rise from $263 billion to $915 billion. By 2025, we will be spending more on interest payments than on defense. A substantial amount of our bondholders are foreign governments – meaning future taxes will go to pay China and Japan for the inability to control spending today. We are paying for those empty parking spaces and doggie hamlet shows with interest.
- Federal debt crowds out savings in the economy – which means there is less investment in the private sector and therefore lower productivity and wages.
- Our debt gives us less wiggle room to handle the next financial crisis. Most economists believe that governments should run deficits during a recession but tighten belts when the economy is good. Welp, Congress is running massive deficits when the economy is good – leaving no fiscal space for things like unemployment payments, payroll tax cuts, stimulus spending, and other forms of spending increases and tax relief that occurred in 2009.
- In fact, the next crisis could be caused by our massive national debt. As CBO says, there “would be a greater risk that investors would become unwilling to finance the government’s borrowing unless they were compensated with very high interest rates; if that happened, interest rates on federal debt would rise suddenly and sharply.” Tick tock.
The impacts of these projections will be real and they will be costly. But they are just projections and there is an opportunity to change this abysmal outcome. Change is coming. Either young Americans demand change from our elected officials now or our economic futures will be fundamentally changed for the worse. The appropriate distribution of resources and the causes and impacts of income inequality is a vigorous debate in Washington. What the CBO report makes clear is that Washington is perpetuating massive generational inequality. As more and more of our nation’s resources are siphoned off to pay for costly and unrealistic promises made to older generations, there will be less and less resources available for future Americans.
The best way to think about the mindset inside-the-beltway is that it is one game played by two teams. The score is kept by opinion polls and pundits but the ultimate contest is the elections. Until this becomes a voting issue for the younger Americans it will impact, Congress will continue to steal from the future to try and juice their election chances. Let’s make the right change.