The Congressional Budget Office has released its newest projections for government spending, revenue–and most importantly–debt over the next 30 years. This release, the first under the Trump administration, essentially follows the conclusions of the last CBO projections from the Obama administration, which were released in January. That consistency isn’t surprising since the CBO conclusions are based on projecting current laws and budgets and whatever the talk in Washington these days, the Republican majority in Congress hasn’t actually passed anything that changes current laws and budgets. As the CBO notes, these projections do not include any proposed changes in tax rates, spending for the military, or in the Affordable Care Act, Medicare, or Medicaid.
The report’s conclusions make grim reading. At 77% of GDP, the percentage of federal government debt held by the public is already at the highest level since the end of World War II. “If current laws generally remained unchanged, the Congressional Budget Office projects, growing budget deficits would boost that debt sharply over the next 30 years; it would reach 150% of GDP in 2047.” (If you would like to read the report yourself, follow this link https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52480-ltbo.pdf )
“The prospect of such large and growing debt poses substantial risks for the nation and presents policymakers with significant challenges,” the CBO notes laconically.
What the report doesn’t say, because it is outside the CBO’s brief in these projections, is that the changes proposed by policy makers so far–a big increase in military spending, a massive tax cut for corporations and for individuals in the highest tax brackets, and the scrapping of current spending limits–would make an already horrific problem worse.
“Why Are Projected Deficits Rising?” the CBO asks.
And answers that deficits rise over the next three decades—from 2.9% of GDP in 2017 to 9.8% in 2047—because spending growth under current law is projected to outpace growth in revenues. The three biggest increases in spending come from Social Security, the major health care programs (primarily Medicare), and interest on the government’s debt.
“Much of the spending growth for Social Security and Medicare results from the aging of the population: As members of the baby-boom generation age and as life expectancy continues to increase, the percentage of the population age 65 or older will grow sharply, boosting the number of beneficiaries of those programs. In addition, growth in spending on Medicare and the other major health care programs is driven by rising health care costs per person, which are projected to increase more quickly than GDP per capita (after the effects of aging and other demographic changes are removed). CBO projects that those health care costs will rise—although more slowly than they have in the past— in part because of the effects of new medical technologies and rising personal income The federal government’s net interest costs are projected to rise sharply as a percentage of GDP for two main reasons. The first and more important is that interest rates are expected to rise from their current low levels, making any given amount of debt more costly to finance. The second reason is the projected increase in deficits: The larger they are, the more the government will need to borrow.”
Both mandatory spending outside of Social Security, Medicare, and Medicaid spending and discretionary spending will decline as a percentage of GDP, the CBO projects. (Which says, if you think about it, that the country faces rising deficits even as Social Security, Medicare, and Medicaid squeeze out all other spending.) The CBO assumes that caps on discretionary spending in current law continue for the next several years.
“What Might the Consequences Be If Current Laws Remained Unchanged?” the CBO asks.
And answers in very neutral language that really doesn’t capture, to my mind, the extent of the danger: “Large and growing federal debt over the coming decades would hurt the economy and constrain future budget policy. The amount of debt that is projected under the extended baseline would reduce national saving and income in the long term; increase the government’s interest costs, putting more pressure on the rest of the budget; limit lawmakers’ ability to respond to unforeseen events; and increase the likelihood of a fiscal crisis, an occurrence in which investors become unwilling to finance a government’s borrowing unless they are compensated with very high interest rates.”
Do note, I’d urge you, that the CBO includes the increased likelihood of fiscal crisis in this list. I’d add the increased likelihood of a financial and monetary crisis as the financial markets and the Federal Reserve try to cope with this huge challenge.
But, hey, we’re talking about 30 years, right? As with climate change, we’ve got plenty of time. No need to do something now.Let’s just wait until the crisis is closer and any solution is more difficult and more expensive. (Although there is always the alternative of denying the problem–the science is unsettled or the economy will grow by 5% a year. Or maybe we’ll just be too busy treading water by 2047 to worry about what Congress in the new mile-high capital of Denver might decide to do about government debt.)