In the past year, Congress has cut taxes, increased spending, and refused to address the coming bankruptcy of Social Security and Medicare. The non-partisan Congressional Budget Office (CBO) has finally added up the tab.
In 2018, Washington will spend $32,000 per household — on the way to $52,000 per household within a decade (are you getting your money’s worth?). Of course, taxes are not close to those levels. That is where the deficit comes in.
President George W. Bush was once lambasted for running $300 billion budget deficits. President Obama broke the $1 trillion barrier during the Great Recession, although a modest economic recovery allowed him to leave office with a deficit of “only” $585 billion.
Assuming current policies are extended, CBO projects that the deficit will reach nearly $1 trillion next year, on its way past $2 trillion within a decade. And that assumes peace, prosperity, and continued low interest rates. If rates instead return to the (still modest) 1990s levels, the budget deficit will likely reach $3 trillion within a decade and continue rising.
The national debt tells the same story. After President Bush pushed the debt from $6 trillion to $10 trillion, President Obama doubled it to $20 trillion. Now, under President Trump, the debt is projected to exceed $36 trillion in a decade, or $260,000 for every household.
None of this is remotely sustainable. What happened?
The recent Tax Cuts and Jobs Act (TCJA) has certainly added to the red ink. Assuming Congress cancels the law’s expiration dates — as is likely — CBO estimates that the tax cuts will cost $2 trillion over the decade, plus $680 billion in interest on the larger national debt. And these numbers already factor in the economic growth the tax cuts are expected to cause (a 0.7 percent boost to GDP, offsetting $460 billion of the gross cost). Notably, the corporate tax cuts are almost completely paid for through budgetary offsets and economic growth; the more popular tax cuts for families and small businesses are also the most expensive. While these $2 trillion in tax cuts include several vital improvements in tax and economic policy, their exorbitant cost cannot be dismissed.
The remaining $11.5 trillion is dominated by Social Security, Medicare, and Medicaid.
Congress also engaged in a spending spree that essentially repealed the Budget Control Act’s discretionary-spending caps. The 2011 BCA was the most successful spending-cut legislation in decades, and its death at the hands of a unified Republican government is a betrayal that should not be forgotten. While the new spending bill raises the caps by roughly $150 billion annually for two years, there is no chance that Congress will ratchet spending back down in 2020. Instead, the $150 billion increase will create a permanently higher spending baseline that brings nearly $2 trillion in new spending and interest costs over the decade.
Altogether, in a span of 50 days, President Trump and Congress added $4.5 trillion in new deficits over the next decade. Years of Republican rhetoric about fiscal responsibility was eviscerated in a little more than seven weeks.
However, I mentioned earlier that the national debt is set to rise by $16 trillion over the next decade. The remaining $11.5 trillion is dominated by Social Security, Medicare, and Medicaid. Even though it is the lead driver of America’s soaring debt, this spending growth proceeds relatively unnoticed because it occurs automatically, with no congressional votes.
Social Security, Medicare, and Medicaid spending is projected to leap from $2.0 trillion to $3.7 trillion over the next decade. In fact, between 2008 and 2028, Social Security, Medicare, and other health benefits (and their resulting interest costs) will account for approximately 85 percent of all inflation-adjusted federal spending growth. Critics reflexively blame defense spending for much of the deficit, yet its share of federal spending will have fallen from 21 percent to a record-low 12 percent over these two decades, even assuming the recent defense spending hike is extended.
These deficits will only get worse. Social Security and Medicare face a projected cash deficit of $82 trillion over the next three decades. The CBO’s assumptions of no new wars, recessions, major terrorist attacks, or national disasters, as well as continued low interest rates, classify this depressing outlook as the rosy scenario. Washington has promised government benefits far beyond any realistic level of taxation. Let the political bloodbath begin.