There was a car repair shop commercial years ago which pointed out the dangers of not taking care of normal maintenance in a timely manner. If we keep our cars properly inspected and maintained we avoid more costly major repair bills.
“You can pay me now or you can pay me later but you will pay.”
Our vehicles last longer and they run better. It is the same principle with the federal government.
Current period reporting on America’s financial condition
The Heritage Foundation has an article about the information contained in the latest Congressional Budget Office (CBO) report. The CBO has made available its budget and economic projections for fiscal years 2020-2030. Its report re-confirms what the CBO has been telling lawmakers for years. This nation is approaching a debt crisis driven by out of control spending. What else can be expected from a government that has not done a budget in 23 years?
Without major reforms to mandatory spending programs, it is not a question of if, but when, all Americans will feel financial impacts from the Congressional spending addiction. Do you hear me Pappas, Kuster, Shaheen, and Hassan? We need to do a federal budget. We need to control spending.
How bad is it?
The CBO projects the annual budget deficit will surpass $1 trillion in the fiscal year 2020. That is 4.6% of gross domestic product. Worse it will rise to over $1.7 trillion annually by the end of the decade. The agency projects the cumulative deficits will top $13.1 trillion from 2021 to 2030.
The CBO also estimates debt held by the public will rise to $17.9 trillion this year. The debt is equal to 80.8% of GDP. The projection is for it to total $31.4 trillion by the end of the fiscal year 2030. That will make our national debt nearly 100% of GDP. That’s Greek territory. Are you listening?
Please understand. The increase in deficit and debt levels projection is not a matter of the federal government taking in too little revenue. Revenues are eating an increasing amount of taxpayer money. They will rise from 16.4% of GDP in fiscal year 2020 to 18% of GDP in 2030. That is higher than the 50-year average. Spending will rise from 21% of GDP in 2021 to 23.4% of GDP over the next 10 years. That’s 3% above the historical average.
Debt will rise to historically high levels.
At the end of fiscal year 2019, debt held by the public rose to 79.2% of GDP. By 2030, debt held by the public is set to reach 98.3% of GDP. According to Office of Management and Budget (OMB) data, the highest level of debt held by the public ever recorded in the U.S. was 106.1% of GDP in 1946, in the immediate aftermath of World War II. It is “unprecedented” for the country to be facing such high levels of debt in a time of relative peace and economic prosperity. We must begin to pay down the debt. Not balance the budget. Pay down the debt. Overspending must stop.
Health care and Social Security are driving spending growth.
Over the next decade, the CBO estimates entitlement spending will rise by a combined 2.7% of GDP. Health care programs and Social Security are projected to consume 59% of all federal revenues by 2030. Both Medicare and Social Security are unsustainable in their current forms and on a path to insolvency. Congress should fundamentally reform these programs to lower costs and return control over health care and retirement needs to the American people.
Besides net interest payments, the Congressional Budget Office projects all other areas of federal spending to decline as a percentage of GDP. Without action to slow the growth of entitlement spending, it will be impossible to achieve a sustainable federal budget. Got that? Medicare and Social Security spending are the biggest sources of spending. Thank you, Boomers.
Interest payments will crowd out national priorities.
By the end of this decade, the CBO estimates the federal government will spend $819 billion annually on interest payments on the national debt. That is more than double what the government spends on interest today. It will amount to 10% of the total projected spending in 2030.
The CBO estimates that in the next 10 years, the federal government will begin to spend more money annually on debt service payments than it will on either Medicaid or the SSDI program. Interest costs will approach the level spent on national defense. Interest payments on the debt are crowding out other national priorities. If debt continues to grow, interest payments will further strain federal resources.
It is time to stop refusing to budget. Congress must know the costs of legislation coming before Congress. Under current scoring rules, interest payments are not included in cost estimates. That needs to change. Congress should enact reforms requiring interest costs to be included in all CBO estimates. This would give Congress a fuller picture of the impacts of its spending decisions. The next task is for the voters to care. There is no free lunch. We have to disabuse ourselves of that Wimpy idea.
Revenues have been growing.
Between fiscal years 2020 and 2030, revenues are projected to rise by 2.6% of GDP. Some attribute rising revenues to the expiration of the 2017 tax cuts. But revenues will continue to grow even if the tax cuts are made permanent. That is true because Americans get wealthier over time, meaning more of our paychecks will be taxed at higher tax rates. Rising deficit and debt levels highlight a spending problem. If Congress allows the tax cuts to expire, deficits will likely grow even faster than projected. Historically, tax increases are paired with increased spending, not deficit reductions.
Waiting means a higher cost for future generations.
Projected debt of nearly 100% of GDP should serve as a sobering warning to all citizens. We must hold Congress accountable to spending reductions. If Congress ignores the warning, the CBO’s long-term projections get more dire. The CBO estimates without reforms to lower the debt, debt held by the public will rise to a 180% of GDP in 30 years. The report warns that “growing debt will dampen economic output over time” and “pose significant risks to the fiscal and economic outlook.”
This will leave lawmakers with few options other than significantly raising taxes on all Americans. That will mean less opportunity and economic prosperity for future generations. The CBO’s latest budget and economic outlook reiterates the current budget path is unsustainable. There is no time to waste.
Congress should act now to implement reform. We need to reduce federal spending and stabilize the national debt. If voters fail to grasp the serious nature of the situation lawmakers will fail to heed these warnings, all Americans present and future will pay the price. “You can pay me now or you can pay me later but you will pay.”