Large budget deficits over the next 30 years are projected to drive the nation's federal debt to unprecedented levels - from 78% of gross domestic product (GDP) in 2019 to 144% by 2049, according to a new report released last week by the Congressional Budget Office (CBO).
Each year the CBO publishes a report presenting its budget projections for the next 30 years. The estimates are derived on economic baseline projections and current law, and would change if new laws are passed or conditions change.
"The prospect of such large deficits over many years, and the high and rising debt that would result, poses substantial risks for the nation and presents policymakers with significant challenges," said CBO director Phillip Swagel.
The CBO says its projection incorporates central estimates of various factors, such as productivity growth and interest rates on federal debt, but Swagel says that, even if those estimates are off, it might not make much difference if lawmakers don't act.
"The upshot is that even if productivity growth or interest rates differed in meaningful ways from our projections in the direction that would tend to reduce deficits, debt several decades from now would probably be much higher than it is today if current laws generally did not change," he said.
If lawmakers do act, Swagel says those projected outcomes can be greatly impacted, for better or for worse.
"If, instead of maintaining current law, lawmakers enacted legislation to maintain certain major policies now in place - most significantly, if they prevented a cut in discretionary spending in 2020 and an increase in individual income taxes in 2026 - then debt held by the public would increase even more, reaching 219 percent of GDP by 2049," he said.
On the other hand, Swagel said, if Social Security benefits were limited to the amounts payable from revenues received by the Social Security trust funds - starting in 2033, when the balances in those funds are projected to be exhausted - debt in 2049 would reach 106 percent of GDP.
That's better, he said, but still well above its current level.
Spending and more spending
According to the CBO report, spending is one of the the biggest culprits.
"Spending for all of the government's programs and activities and for its net interest costs is projected to account for a larger percentage of GDP in coming years than it has, on average, over the past 50 years," the report stated.
Excluding net spending on interest, federal outlays averaged 18.3% of GDP from 1969 to 2018. Under current law, non-interest outlays are projected to rise from 18.9 percent of GDP in 2019 to 19.8% in 2029, the report states.
What's more, mandatory spending such as for Social Security and Medicare is generally projected to increase as a share of the economy, and discretionary spending is generally projected to decrease.
Then, too, according to the report, a projected increase in federal borrowing would lead to significantly higher interest costs.
In CBO's extended baseline projections, net outlays for interest more than triple in relation to the size of the economy over the next three decades, exceeding all discretionary spending by 2046.
Indeed, according to the report, if current laws generally remain unchanged, growing budget deficits would boost federal debt drastically over the next 30 years. Debt would reach 92% of GDP by the end of the next decade and 144% by 2049.
"That level of debt would be the highest in the nation's history by far, and it would be on track to increase even more," the report states.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, bemoaned the new projections.
"Another year has passed and Congress has done nothing to address our rapidly rising debt, which will reach a new record as soon as 2030 and double as soon as 2040," MacGuineas said.
"Even under current law, debt will grow faster than the economy indefinitely, and we will spend more on interest payments on the debt than the entire discretionary budget by 2046. Imagine spending more to service past decisions than to protect the country and invest in the future."
MacGuineas observed that the CBO estimates that fixing the debt would increase income per person by $5,500 a year, lower interest rates, increase space for public investment, and reduce the risk of a fiscal crisis.
"But instead of taking advantage of our economic strength to slow rising debt, policymakers have made it worse by cutting taxes and increasing spending," she said. "And they seem intent on continuing their borrowing binge. Each day seems to bring a new trillion-dollar idea but few ways to pay for the cost."
Enough is enough, MacGuineas said.
"Policymakers need to start taking our long-term budget outlook seriously," she said. "If they don't, their children and grandchildren will have to."
Just last week, MacGuineas said, the House Ways and Means Committee was scheduled to mark up legislation to revive special interest tax breaks known as "tax extenders," while also passing new temporary tax breaks. CRFB estimates that the bill would add more than $100 billion to the debt in two years, or in the range of a half-trillion dollars over 10 years if made permanent.
The bill has prompted opposition from across the political spectrum. Last week 12 organizations from Right to Left called on Congress to end the tax breaks.
The groups ranged from Americans for Prosperity and Heritage Action for America and FreedomWorks to the Economic Policy Institute, the U.S. Public Interest Research Group (U.S. PIRG), and the Progressive Policy Institute, among others.
"This plan doesn't just bring these zombie extenders back from the dead, it multiplies them," MacGuineas said. "They took already terrible policy and expanded it - creating new temporary tax breaks that will add to the debt and carry a significant long-term cost. The last thing we need to do is give life to new tax extenders on top of these and extend the ritual of writing tax policy one year at a time."
Richard Moore is the author of the forthcoming "Storyfinding: From the Journey to the Story" and can be reached at richardmoorebooks.com.
Posted: Thursday, July 11, 2019
Article comment by:
Mr. Moore states that government spending is one of the biggest culprits for the increased deficit. However, the first reason given for the deficits by the CBO Director isn’t spending, but interest costs – “Higher interest costs are a major contributor to the large deficits that we project—the result of a substantial increase in federal borrowing, along with higher interest rates over the long term. We project that net outlays for interest would more than triple in relation to the size of the economy over the next three decades, exceeding all discretionary spending by 2046.”(CBO Director’s Statement of The 2019 Long-Term Budget Outlook www.cbo.gov/publication/55384).
How our government prioritizes spending is topic worthy of public discussion. Presenting cherry-picked quotes from a report only serves the interest of the publisher, not the public. The readers in the Northwoods deserve better than this.
Posted: Friday, July 5, 2019
Article comment by:
Merlin Van Buren
Republicans had total control of the Federal Government for two years. The only thing they did about the deficit was make it worse. Far worse. Their tax cut, giving most of the money to the wealthiest, has ballooned the deficit. No mention of that in your article. Republicans, not Democrats have produced almost all of the deficit. You also lumped in Social Security in with discretionary spending. Social Security has an easy fix, no one is willing to pass eliminate the cap on the Soc Sec tax.
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