The most staggering thing about a recent report about the nation’s fiscal health wasn’t that lawmakers must lift the debt ceiling this summer or the nation could default.
We’ve known that for a while – although the drop-dead date is fudgy at best.
The most shocking thing is what shouldn’t be shocking. It hasn’t been shocking for decades now. And each time we’re still shocked. But a few years later, we’re even more shocked and the old shock seems passé.
So, the most shocking thing?
The sheer level of debt that the Congressional Budget Office (CBO) projects that the U.S. will carry in the next few years.
The current debt the U.S. owes is $31.4 trillion. But the CBO estimates the federal government will accumulate an eye-popping $19 trillion in debt over the next decade. New laws passed by Congress since last year will account for $1.5 trillion of that debt. The CBO augers that the Inflation Reduction Act (IRA) and the infrastructure bill will tack on an additional $3 trillion in debt which wasn’t anticipated around this time last year.
Tax cuts approved by Congressional Republicans in 2017 also didn’t help. Note that lawmakers often predict that tax cuts will pay for themselves by stimulating economic growth. But members of Congress often make those decisions against static economic models. No one expected COVID or sky-high inflation a few years after the tax reductions.
“The fiscal trajectory is challenging,” said CBO Director Phil Swagel on Fox about the debt spike over the past few months. “It’s a mix of things. Some increased benefits for veterans was a big part of that. There are some subsidies for chip manufacturers, some other things. So that’s legislation. There’s also the economy. We had much higher inflation.”
A rapidly growing portion of what Washington terms “mandatory spending” (meaning money which the Treasury is compelled to spend without an annual appropriation from Congress) is interest on the federal debt. Interest rates are higher. Inflation is grossly higher.
The Federal Reserve raised interest rates up to 4.75 percent this year from practically zero. That means the government is paying more to borrow money.
“That translates into higher payments. A higher cost for the government and a bigger deficit,” said Swagel.
The CBO predicted that adds on $10.4 trillion in interest over the next ten years. That figure clocked in at $8 trillion just a year ago.
It was dangerous for the federal government when the debt began climbing decades ago. But it really took off after 9/11 and the wars in Iraq and Afghanistan. The financial turndown of 2008 didn’t help matters. We mentioned the tax cuts. And the profligate spending of COVID catapulted projected debt to frightening levels.
“Our projections suggest that changes in fiscal policy must be made to address the rising cost of interest and mitigate other adverse consequences of high and rising debt,” said Swagel.
Keep in mind that the CBO is restricted in its analysis to what it knows now.
The CBO cannot forecast another 9/11. Another war. Another 2008-esque financial meltdown. Another pandemic. Or even another gigantic spending bill.
Moreover, the CBO scores America’s financial conditions based on “current law.” CBO economists aren’t soothsayers. The must rely on what’s on the books right now to construct their baselines and anticipate revenue projections and deficits.
However, there seems to be one constant. Federal spending usually grows. And so does the national debt. The trend over the past two decades has seen geometric increases in that category. So it’s hard to see what could alter that trajectory.
The conversation right now focuses on the need to raise the debt ceiling in the summertime – forestalling a catastrophic federal default. The debt ceiling fights of 2011 and 2013 yielded minor fiscal agreements to cushion the looming economic debt crisis. House Speaker Kevin McCarthy, R-Calif., suggests that some sort of accord is necessary to raise the debt ceiling this year. However, those previous agreements offer weak fiscal tea to counter the tsunami of debt which is now crashing down on the Washington shores. An agreement to fundamentally recalibrate the fiscal orientation would have to dwarf the 2011 and 2013 pacts. And it’s unclear if McCarthy, other lawmakers and President Biden possess the political prowess to make any difference.
That’s partly why the debt continues to skyrocket. There hasn’t been a major effort to curb the national debt in decades. Former House Speaker Newt Gingrich, R-Ga., and former President Bill Clinton secured a package which put the nation on a sound footing in the mid-1990s. But things have headed in the wrong direction ever since.
Republicans often tout prospects of “balancing the budget.” Such a gambit would require slashing $7 trillion in spending. That would eliminate most entitlements and hollow out the military. All are the most expensive areas of current budgeting.
Swagel is candid about those prospects.
“It’s challenging to balance the budget. And then it’s challenging to balance the budget by setting part of the budget off limits. It’s arithmetically possible. But quite difficult.”
At this point, deficits will jump by $2 trillion each year. The costs of Social Security and Medicare will rise as more baby boomers retire. Keep in mind that Mr. Biden and McCarthy have specifically ruled out touching Social Security and Medicare. However, unsaid in that conversation is that Medicaid could be on the table.
Even so, the debt will climb to 118 percent of the annual U.S. economic output each year by 2033.
Granted, some policymakers have sounded these alarm bells for decades. But this sort of debt is astronomical when compared to a percentage of Gross Domestic Product (GDP). That’s why some lawmakers are growing jittery about just how much red ink they’re seeing when they couple that with this summer’s debt ceiling collision.
CBO reports are often met with a yawn. They’re written in a way which would make the eyes of even a green eyeshade accountant glaze over.
Not this time.
And perhaps that’s because the numbers have never really been this shocking.
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