For more than a decade, Congressmen – especially of the Republican variety – have been lamenting our continual budget deficits and growing national debt. Despite the bellyaching, in the past decade alone, the national debt has doubled from $10 trillion to more than $21 trillion. What plagues these Congressional leaders is this equation:
Revenue – spending = X
When revenue is larger than spending, we get a budget surplus.
When spending is larger than revenue, we get a budget deficit.
Every year for the last 17 years we have been in a budget deficit. And these deficits are projected to grow larger and larger every year. Which adds to an already massive and exploding national debt. Right now, the debt held by the public is projected to equal 105 percent of GDP in 2033, 118 percent in 2038, 133 percent in 2043, and 152 percent in 2048. And those are under optimistic scenarios.
So how do we get to a surplus…or at least a more manageable deficit? Put away your TI-82s and number 2 pencils, because the Congressional Budget Office (CBO) has the answer.
“If lawmakers wanted to meet various targets for debt, they could do so by cutting noninterest spending, raising revenues, or both.”
One more time:
“If lawmakers wanted to meet various targets for debt, they could do so by cutting noninterest spending, raising revenues, or both.”
While people can argue about how much national debt is safe, only a fringe theory will argue that our current fiscal path is dandy (modern monetarists think that Congress can responsibly control inflation…good luck with that). But how does our budget nightmare get fixed? The assignment belongs to Congress and Congress alone. But CBO recently laid out exactly how much Congress needs to cut spending or raise revenues to sustain our fiscal course.
Last month, CBO issued a report entitled “The Deficit Reductions Necessary to Meet Various Targets for Federal Debt.” It outlines how much Congress needs to cut spending or raise revenues to sustain our nation’s finances. The amount of deficit reduction needed is daunting.
To help give the procrastinators as much help as possible, CBO sliced and diced the numbers to provide different goals and options. In order to merely maintain the debt at its current historically high level of 78 percent of debt-to-GDP by 2048, Congress will need to cut spending or increase revenues by a combined 1.3 percent of GDP. In today’s dollars, that is $400 billion. Every year. For the next 29 years. That is the equivalent to $1200 per person per year. If Congress wants to grow the debt-to-GDP to a still-record breaking 100 percent would require $270 billion in deficit reduction every year for the next 29 years.
To put that in context, Congress just threw a hissy fit about budget caps that reduced discretionary spending on average by $100 billion per year. They opted to reverse these caps and spend an extra $160 billion over the next two years. This crop of Congressmen may not be up to the task.
Through all the number crunching and goal setting, CBO had a clear takeaway: larger cuts to deficits result in stronger economic output. That means the sooner Congress starts stabilizing the budget, the stronger our economic growth will be.
As both parties make their cases to the public about why they should be in charge, they will tout their contributions or plans for the economy. Quick hitters like new tax cuts and spending programs may give a small short-term boost to the economy and poll numbers, but the only path to sustainable economic growth is a sustainable federal budget. That’s a case that younger generations must demand.
