Amid all the blaring headlines coming out of Washington, D.C., here’s a piece of news that is getting far too little attention: The U.S. is on course for fiscal breakdown.
That’s the unambiguous message from the Congressional Budget Office’s newly updated long-term projections. Unless Congress changes course, there’ll be a reckoning, and it will be grim.
As the CBO details, deficit spending is more out of control than ever. Both parties share the blame, as do both ends of Pennsylvania Avenue. And all should remember that investors’ appetite for U.S. government debt isn’t limitless.
The federal government is currently spending roughly $7 trillion and collecting only $5 trillion in taxes annually. The resulting deficit is a little over 6% of gross domestic product, a disturbingly high number for an economy around full employment.
The CBO expects public borrowing to remain at this elevated level or higher for decades. Assuming no recessions, public debt will rise to 100% of GDP this year and 118% by 2035 — and it just keeps rising from there.
A responsible Congress would make deficit reduction its overriding priority. Instead, Republicans are discussing ways to borrow more — and not just a little more. New tax cuts are under consideration. And many want to extend provisions of the 2017 Tax Cuts and Jobs Act, which would otherwise expire at the end of this year.
Extending the law in full would increase the national debt by roughly $5 trillion over the next decade and $40 trillion over 30 years. The debt ratio in 30 years would soar to more than 200% of GDP.
Higher tariff revenues won’t come close to balancing the books. In fact, the impact on overall revenue is likely to be negative, because tariffs depress commercial activity and job creation.
Savings from slashing the federal payroll won’t have any appreciable effect, either. For all the media attention generated by cuts to personnel and programs — and some of them are warranted — they are having almost no impact on restraining the budget deficit.
Making matters worse, the mass layoffs and program cuts are being made without concern for the delivery of public services that voters depend on. When they see that public parks are closed, health care is declining and deaths from infectious disease are becoming more common, they’ll be angry.
Republicans may pay a steep price when the midterm elections roll around next year, but regardless: The current approach to governing isn’t tenable in the long run.
At some point, long before the debt reaches stratospheric heights, financial markets — if not voters — will say enough is enough. Bond prices will collapse, long-term interest rates will spike and the government will default — either explicitly or behind the cloak of surging inflation.
Restoring fiscal control should be job No. 1 for this Congress. The only sensible approach is to combine moderate tax increases and judicious cuts in spending. Spreading the burden would allow the changes to be more palatable and gradual, if they’re undertaken soon.
Elements of the Tax Cuts and Jobs Act are worth preserving: The bigger standard income-tax deduction and stronger investment incentives, for example, are pro-growth. But all such extensions, and any other new measures, should be more than matched by lower spending and higher taxes overall, to deliver a substantial net reduction in projected deficits.
Congress has already delayed too long, but the cost of delaying further — and worse, compounding the problem with additional deficit spending — will have devastating economic consequences.
In Washington, D.C., the biggest scandals are often hiding in plain sight. Unless Congress and the administration get serious about deficit reduction, Americans will soon see the costs pile up around them.
