Surprise, surprise; despite the never-ending list of excuses, exaggerations and free-lunch promises over the past months, it turns out that the laws of economics still apply.
Congress and the president have been on a massive borrowing binge; first with the Republican tax cuts and then with the bipartisan budget-busting spending bill, which together will add $2.3 trillion to the debt over the next decade, or as much as $5.1 trillion if the policies are extended.
The $1.9 trillion cost of the tax cuts ($2.7 trillion if they are made permanent) — which supplanted a once-in-a-generation opportunity for true tax reform to clean up the code, provide certainty and grow the economy — were disingenuously sold as the key to such massive growth that they would pay for themselves. But the proof will be in the pudding...or in this case, the national debt.
A realistic prediction of the tax cuts is they will provide a short-term boost — the sugar high that flooding a strong economy with additional money creates. But that deficit-financed boost won’t last, and it will leave us with the predictably large mountain of debt that comes with all of that borrowing.
On the other side of the ledger, some are pointing to the relatively smooth movement of the appropriations bills as a sign the budget process is finally working. While it is definitely good to see those bills moving, we did grease the wheels with an extra $143 billion.
Throwing borrowed money at the problem is not an actual fix to what ails our budget process. That would come from our politicians demonstrating political will and a willingness to compromise.
So now the numbers are coming in. This year’s annual deficit has grown by 20 percent in the first 10 months of the fiscal year. That’s quite a swing, particularly given that a year ago, the deficit was predicted to shrink by 20 percent, which is what you should expect during an economic recovery.
Even the White House is now projecting the deficit could reach an eye-popping $1 trillion next year. At 5.1 percent of GDP, we have never seen a deficit this large outside of World War II while the economy was this strong.
This reverse course in the deficit is no surprise. Tax cuts will add almost $165 billion to this year’s deficit, and the spending bill will add another $70 billion, bringing this year’s deficit close to $800 billion.
Next year, the tax bill will cost us $230 billion while the spending bill will cost nearly $200 billion. I guess I shouldn’t say cost “us”; we should turn to our kids and explain why it will cost them.
Don’t be fooled by claims that strong growth means there is nothing to worry about. Yes, nominal revenues will increase slightly this year; but after you adjust for inflation, revenue is falling. When you only look at revenue from this tax year (remember, the surge in April revenue was for last year’s tax code), revenue is plummeting.
Meanwhile, spending is surging — not only because of the recent irresponsible spending deal, but because Social Security, health care and interest costs are growing much faster than the economy.
Sadly, one of the most damaging side effects of the fiscal profligacy is that it has undermined the correct arguments that we need to address our nation’s entitlement programs.
By choosing tax cuts over responsible tax reforms, Republicans have given Democrats an excuse to refuse to engage on needed entitlement fixes (not that you hear much about if from Republicans anymore.)
By increasing the discretionary caps by borrowing instead of offsetting the costs from other parts of the budget, we gave up on the sensible trade of entitlement reform coupled with looser discretionary caps.
Adding to our historic debt at a time of economic strength is baffling and dangerous. We should be preparing for the perilous road ahead. Instead, we squandered the opportunity and put debt on an even faster upward path.
As we march toward trillion-dollar deficits, we need to keep an eye on another monster 13-digit milestone: trillion-dollar annual interest payments. On our current track, we will be there in 10 to 12 years. Do we as a nation want to spend more on interest payments on the debt than we do on the Department of Defense or Medicaid?
What American family would want credit card interest as the largest item in their budget?
We've had good growth this year, but it won’t last forever. Once the short-term stimulus wears off, our economy will be weighed down by debt and a generational shift in demographics. The latter isn’t the president’s fault, but he should be preparing for it. It is no longer a problem for future generations or future presidents.
The fiscal crisis is on our doorstep.
Maya MacGuineas is the president of the Committee for a Responsible Federal Budget.