The nation is in a perilous fiscal condition. Judging by the collective public yawn following the release of yesterday’s Congressional Budget Office 2024 Budget and Economic Outlook, one can only wonder why there is not greater alarm.
Yes, there are the normal post-release platitudes from think-tanks and influencers on the left and right. There are below-the-fold small-type headlines. But the report’s content and confirmation of the nation’s fiscal situation should serve as a wake-up call. We must act now to ensure a prosperous future for our children.
There are several disturbing trends revealed in the CBO outlook. If allowed to continue, they will guarantee our country’s fiscal ruin and lower the standard of living for every future American.
One trend is that Washington politicians are projected to spend $1.5 trillion more than they collect in taxes and revenue in 2024 alone, notwithstanding anticipated above-average tax collections at 17.5 percent of GDP. This approach to spending will result in deficits that are projected at $20 trillion over ten years.
As of 2034, the federal government will have run deficits for 33 consecutive years and 69 of the 74 years dating back to the Eisenhower administration. The current total federal debt of more than $34 trillion will climb to $54 trillion by 2034. The publicly held debt (99 percent of GDP) is already beyond the point where many economists believe the nation’s productivity and prosperity start to suffer as a consequence of government borrowing.
Meanwhile, the CBO shows debt servicing costs exploding as federal interest payments rise to $870 billion in 2024. They are projected to be $12.4 trillion over the coming decade. Keep in mind, these funds could have been used to reform and shore up mandatory spending programs such as Social Security and Medicare. Instead, they must cover the borrowing costs resulting from the irresponsible spending decisions of past and continuing Congresses.
Ultimately, Congress has the constitutional power of the purse and can change laws to reform mandatory spending and reduce and prioritize annual spending through the appropriations process. It’s just that it never does.
Instead, many in Congress are pursuing policies to spend more on mandatory and discretionary programs. They go even further with emergency supplemental spending bills.
Many Americans, perhaps including members of Congress, have difficulty processing these huge numbers. Perhaps that is part of why we have these deficits and debt. Maybe the comically large numbers are why no one seems to care.
It gets a little confusing for some when considering that the CBO’s budget reflects a current-law policy baseline that includes both tax hikes that will never be allowed to occur, and spending reductions for programs that will never terminate as scheduled.
Former CBO Director Douglas Holtz-Eakin of the American Action Forum rightly points to this and advises us to “interpret the CBO projections accordingly.” But what never changes is that the debt gets bigger, no matter what.
It was not always like this. A mere quarter-century ago, America enjoyed four consecutive years of surplus. Some of this was linked to reduced military spending after the Cold War. But a big part of those surpluses came from Congress taking budgeting seriously. Congresses passed budgets, and slowed (not stopped) spending growth to a rate below economic growth. The economy boomed, and so did federal revenue.
This rare congressionally driven, post-progressive era moment of spending restraint, coupled with the bipartisan 1997 tax reform, unleashed the economy. Publicly held debt dropped to $3.3 trillion ($4.5 trillion in real inflation-adjusted 2017 dollars). It was a moment when there was a serious bipartisan desire to enact sustainable Social Security reform.
As a young congressional staffer, I saw internal debates between fiscal hawks wanting to go further to pay off more debt and appropriators salivating over what they could spend. At that time, then-Federal Reserve Chairman Alan Greenspan pleaded with Congress “to resist those policies that could readily resurrect the deficits of the past.”
Sadly, Greenspan’s advice was ignored. That era of surpluses was short-lived. Much changed in the wake of the 9/11 attacks, the endless wars that followed, the 2008 financial crisis and bailouts, and most recently, the unprecedented spending related to COVID.
A return to the earlier era of restraint is desperately needed. It’s not clear what will be our nation’s fiscal point of no return, but with forecasts of global population decline, owing to decreasing fertility and other factors, it is possible that the potential for growth and productivity will likewise decline, making reform even more challenging.
For too long, fiscal reform has been used for political purposes. We need the political parties to come together in a bipartisan way to keep total federal spending in check to around 18 percent of GDP, closer to historically sustainable levels of revenue collection. This will require mandatory spending reforms that transition Social Security and Medicare from platform programs for all to safety net programs ensuring that no one falls through the cracks.
The bipartisan debt commission bill recently marked-up in the House Budget Committee is a good starting point for the substantial reforms that are needed.
Mostly, we need real leadership. We need statesmen of the caliber of Webster and Clay to help put our nation back on track fiscally, so that our children can enjoy a nation as bright and prosperous as the one we inherited. It is time to rally to CBO’s fiscal alarm.
Doug Branch served as deputy staff director of the Joint Economic Committee (JEC) and deputy chief of staff to a House Financial Services Subcommittee chairman. He is the founder of Phronesis Insights.
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