"The deficit was $779 billion this past year?! How on earth did that happen?!," lawmakers gasp.
The numbers are terrible. It is indeed cause for alarm, and it necessitates action. To have a deficit this large during a period of prosperity (when we should ideally be running surpluses) is nearly unprecedented.
But, to our leaders; can we please drop the political antics?
Not all lawmakers are at fault here, that’s for sure. Those who voted against the shockingly irresponsible Republican tax cut and the bipartisan budget-busting spending increases are not complicit in the massive uptick in the deficit.
But for those congressmen and women who supported one or both of these bills, the blame for this deterioration in an already very bad situation lies squarely at your feet.
Overall, the 3.9-percent of GDP imbalance, unusual in times of economic prosperity, is a combination of structural imbalances driven by promises in mandatory health and retirement programs with inadequate financing, which we have known about for decades and done nothing to resolve, combined with stunningly irresponsible and unjustifiable legislation passed this past year.
Just a year-and-a-half ago, when President TrumpDonald TrumpFormer chairman of Wisconsin GOP party signals he will comply with Jan. 6 committee subpoena Overnight Defense & National Security — Pentagon tells Russia to stand down Billionaire GOP donor maxed out to Manchin following his Build Back Better opposition MORE entered office, estimates were that the deficit would be $487 billion. Reaching $779 billion is quite a jump.
Even without the debt-binging frenzy of last year, we were in trouble. Deficits were on an upward trajectory. Social Security is no longer running cash-flow surpluses and will require $1.6 trillion be repaid from the trust funds over the coming decade.
Major trust funds are heading toward insolvency, with the Highway Trust Fund running out in just four years, and Social Security Disability Insurance and Medicare trust funds depleting within a decade.
Most of the growth in spending in the budget comes from Social Security, health care and interest on the debt — all of which are growing faster than the economy.
But on top of that, the tax cuts, supported by nearly every Republican, added $164 billion to this past year’s deficit. The spending deal that traded deficit-financed defense spending for deficit-financed domestic discretionary spending added another $68 billion. (There was more, but those are the biggies.)
Combined, the two measures are expected to cost even more next fiscal year — $228 billion and $188 billion, respectively — causing the deficit to reach nearly $1 trillion.
In case you are inclined to deny any of this matters, keep in mind:
- it harms economic growth at a period where we need to boost it;
- leaves us ill-prepared for the next recession or emergency;
- leads to growing interest payments that squeeze out other areas of the budget; and
- absorbs funds we might otherwise use to help with a dramatically shifting economy from changes from aging, globalization and technology.
Perhaps as dangerous as the policy choices though are the stories lawmakers are telling themselves about the situation. First, tax cuts were never going to pay for themselves. Grow the economy? Yes. Pay for themselves? Not even close.
Anyone who studies the issue seriously knows this to be true, which means that those who made those claims were either being disingenuous (lying) or don’t understand the issue well enough to be making tax policy.
Second, folks need to stop claiming the tax cuts are working. As we show here, the fact that income tax revenues are slightly higher than last year doesn’t come anywhere close to showing tax cuts are generating more revenues.
In fact, what the numbers show is that revenues are well below what was projected before the tax cuts and are draining coffers at a time that, particularly given all the spending increases, we can ill afford it.
Finally, there are entitlements. The simple truth is that we need to address the imbalances in Social Security and Medicare, and we have for a long time. Every year, the trustees warn us to make needed changes. Though fights about entitlement reform are some of the most vicious, it shouldn’t even be an issue.
If we don’t fix these programs, recipients will not get the benefits they have been promised and abrupt, across-the-board benefit cuts will hurt those who depend on the programs the most.
What is open for disagreement is how we fix the entitlements programs. It can be done with benefit cuts, tax increases or both. On this topic, there is plenty of room for legitimate disagreement.
Unfortunately, after the tax cuts, Democrats are highly unlikely to even have that discussion. This is not the first time Republicans have fretted about debt and then, faced with an opportunity to do something about it, cut taxes and made the situation worse.
Yes, President Obama created a massive new entitlement, but at least it was paid for — if the tax cuts had been revenue neutral, it would have been a totally different story.
Moreover, for the past two years, Republicans opted not to use reconciliation to reform these programs and actually went stunningly dark on the issue. So the frustrating reality is that while entitlement reform is desperately needed, the odds are that we won’t be getting it any time soon, which leaves these programs and the budget at great risk.
We made a bad fiscal situation worse and further poisoned an already poisonous political environment. Lawmakers won’t be up to the challenge of fixing this until they are willing to place policy over politics, focus on the longer term, make compromises and face up to needed tough choices. Something is going to have to change.
Maya MacGuineas is president of the bipartisan Committee for a Responsible Federal Budget.