CBO’s newest spending report is an abyss of red ink
If you want a good contrast to Washington’s bitter partisan battles, look no further than the Congressional Budget Office’s new report. It’s proof that members of Congress and the administration actually can agree on one thing: more government spending.
CBO’s January Budget and Economic Outlook is a depressing read. Last year the federal government brought in a record-high $3.5 trillion in tax revenue. However, spending also hit a record high, nearly $4.5 trillion, the equivalent of $36,000 per household, resulting in a deficit of almost $1 trillion.
These deficits are not the temporary biproduct of a major recession, stimulus spending, bailouts like those of a decade ago, or a war like World War II. No, trillion-dollar deficits are here to stay – a stinging indictment of this bipartisan spending addiction. They are structural and will grow ever larger unless we get a handle on our problem. The 2020s will usher us into an abyss of red ink.
At the end of last year, total federal debt stood at nearly $23 trillion, or $184,000 per household. But over the next decade it will top $36 trillion, 13 percent larger than the U.S. economy and a staggering $270,000 per household. It will be driven by federal spending that will reach an estimated $7.5 trillion in 2030 – especially mandatory spending, the part of the budget that grows on autopilot, whose largest drivers are Social Security and Medicare.
The report warns us not to be complacent. Beyond higher inflation and higher interest rates, high debt risks a fiscal crisis and limits policymakers’ ability to respond to any crisis.
The fastest growing part of the budget, interest on the debt, is perhaps the most wasteful of all government spending because it adds no intrinsic value to society. By 2030 interest payments will top $800 billion a year, almost what is spent on defense. Revenues will grow too, reaching nearly $6 trillion. But spending will grow faster.
This gloomy scenario assumes Congress slows spending growth on the discretionary side of the budget. But its budget decisions over the last decade don’t offer much hope.
Congress forged a deficit reduction package in the Budget Control Act of 2011 intended to lower deficits by $2 trillion over 10 years. But Congress quickly abandoned the spending caps with a series of budget deals that postponed necessary cuts. Last summer, Congress and the president abolished the caps for good, but didn’t bother to bar the door with any new fiscal restraints that would limit spending this year or beyond. Case in point: December’s budget busting spending bills helped add another 30 percentage points to publicly held debt, putting it even further into record territory.
This is not a revenue problem. Federal revenue will soon reach its historical average of 17.4 percent of GDP, even if the 2017 tax cuts are made permanent, while spending soars above past levels. So paying for this spending would take a major tax hike, like a European-style value added tax on all purchases of 17 percent, or more than doubling the current payroll tax from 7.65 percent to 16.75 percent for all workers and employers, including the middle class and the most vulnerable.
High debt could cause a financial crisis. But even without a crisis it has economic costs, as debt drags on the economy and lowers prosperity. Last year, CBO estimated the price tag at 3.6 percent of GDP, or $13,600 for a family of four.
Spending is a measure of the size and scope of government. Bigger government creates societal problems of its own, such as harmful incentives to rely on Washington, cronyism and corporate handouts, unreasonable expectations that the government can and should solve every problem, and the crowd-out of positive private resources and activities. More government involvement in the economy means fewer choices, less innovation and less opportunity.
Rather than discuss whether we can afford what we have now, promises from the campaign trail offer free health care, free college, student debt forgiveness and more. But there is no free lunch. All Americans will pay in some way. There have been a few murmurs about the need to tackle Social Security and Medicare’s fiscal challenges. Americans must understand the gravity of our federal finances and they need straight talk to do so.
There are some points of inspiration. Sens. Mike Enzi’s (R-Wyo.) and Sheldon Whitehouse’s (D-R.I.) Bipartisan Congressional Budget Reform Act would create important process reforms, including incentivizing bipartisan action to solve the debt problem. Sens. Mitt Romney’s (R-Utah) and Joe Manchin’s (D-W.Va.) Time to Rescue United States Trusts Act would create a bipartisan task force to address the insolvency of programs such as Social Security and Medicare. Both would be welcome progress.
The question for Americans is whether we will admit we have a real problem and agree on the need to forge a better way for ourselves, our children and our grandchildren, or whether we let this bipartisan spending addiction push us firmly into the abyss.
Alison Acosta Winters is a senior policy fellow at Americans for Prosperity, which advocates for free markets and smaller government.
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