Latest CBO Forecast: Heightened Danger for US Growth
Imagine that your household is $1 million in debt. You've said you're trying to cut spending in areas like book club and library cards, but the debt just keeps growing. An outsider may point to the $10,000 a month home mortgage, or the $5,000 a month car payments, or the $1,000 scotch you buy each week.
An unrealistic situation in all likelihood; that is, unless that person represents the federal government and its incredibly reckless spending habits, which are now putting all households at risk.
The Congressional Budget Office (CBO) recently released a report detailing how the federal government's spending habits are going to continue to drive up the national debt, creating a very dangerous situation for the United States economy. The report shows how by the the year 2028, the government will have a total of $28.7 trillion of debt, and that's a low-end estimate.
James C. Capretta, scholar of US budget policy, writes that this new report, as bleak a picture as it paints, is actually somewhat optimistic.
It assumes Congress will let many of the tax-cutting provisions enacted in the recently passed tax legislation expire after 2025. It also assumes, even more implausibly, that the caps on defense and nondefense appropriations for 2020 and 2021 contained in the Budget Control Act of 2011 will remain in place, thus forcing deep cuts in federal spending. However, Congress just enacted a bipartisan agreement to raise the caps in 2018 and 2019 by nearly $300 billion over that two-year period. If the tax cuts are made permanent, and if discretionary appropriations grow with the rate of inflation after 2019, then the budget deficit over the next decade would be $15 trillion instead of the $12.4 trillion contained in CBO’s baseline forecast.
By 2028, the annual budget deficit would increase to 7.1 percent of the national GDP, and the federal national debt would increase to a staggering 105 percent of the GDP.
Government budget deficits slow economic growth, and at a time when the economy is just starting to experience real growth for the first time since the Great Recession, which adds another layer of urgency to the issue.
[T]he agency also notes that wider federal deficits and more borrowing by the government are drags on economic growth — a view that fiscal conservatives should share. CBO expects real GDP to grow at an average annual rate of just 1.9 percent over the period 2018 to 2028.
What's driving these deficits? Capretta notes that a group of well-respected scholars have made the case for why entitlement spending is not the cause of the debt, but the facts tell another story.
In 1970, federal spending on Social Security, Medicare, and Medicaid was just 3.7 percent of GDP. In 2019, CBO expects spending on these programs to be 10.5 percent of GDP. Over the next 10 years, the federal government will spend an additional $15 trillion above what would be spent if total outlays were frozen at this year’s level. Of that amount, $9.8 trillion will go entitlement programs, and another $3.7 trillion will be devoted to paying interest on the national debt. The federal budget is heavily weighted toward entitlement spending and will become more so in the coming years.
Capretta is opposed to the idea of a Balanced Budget Amendment to stop this trend because it invites the courts to meddle in tax law, an area of public policy that must be handled by elected officials, not judges. The prognosis for any such amendment being passed by Congress and the states is nil.
President Trump says he wants to make cuts in spending found in the omnibus bill passed a few weeks ago, and by using the Congressional Budget and Impoundment Control Act of 1974, which could be done as under this authority there is no filibuster option in the Senate.
Whatever the mechanism, spending must be cut. Long-term effects of this debt cannot be solved with short-term Band-aids.