Over the last few years, flat spending has cut the deficit down from $1.4 trillion to $400 billion. That’s OK. But it’s not a permanent fix. And after the recent budget deal, the Committee for a Responsible Budget here to remind us that we are in temporary lull:
CBO now projects deficits more than tripling, from $439 billion in 2015 to $1.37 trillion by 2026, with trillion dollar deficits returning by 2022 – three years earlier than prior projections.
Debt held by the public, meanwhile, will grow by over $10 trillion from $13.1 trillion at the end of 2015 to $23.8 trillion by 2026. As a share of Gross Domestic Product (GDP), debt will grow from 74 percent of GDP in 2015 – already twice its pre-recession levels – to 86 percent of GDP in 2026. By comparison, August projections showed debt on track to reach roughly 77 percent of GDP, or $21 trillion, by 2025….
The largest driver of this difference is legislation changes, especially the $855 billion tax extenders and omnibus spending package. Total legislative changes appear somewhat lower, driven by gimmicks and baseline quirks surrounding the $70 billion highway bill and the Bipartisan Budget Act. The remaining difference is from a combination of economic and technical factors, especially driven by lower projected economic growth….
CBO shows a worse debt picture than before both because of lawmakers’ own doing and other factors. It is clear now that deficits will no longer be in decline as they have been for the past five years, and debt will continue to increase from near-record high levels. The complacency that lawmakers have shown about debt over the past few years must end so they can address the troublesome trajectory of deficits and debt.
Now, to be fair, the CBO projects from baseline budgeting. And the worsening of the debt picture is mainly because the budget deal made tax breaks permanent rather than pretend they would expire every year. Still, that’s a grim picture.
The good news is that it is not an unsolvable problem. Returning to the flat spending levels we had for five years would dramatically cut into that debt — each new dollar spent is compounded by baseline budgeting that grows that dollar into two within a decade. A 1986-style tax overhaul that increased revenue will cutting the deadweight loss of the tax system would also help. Obamacare is driving some of the deficit — the system was designed to “balance” over the first ten years but start steering into a ditch very soon (a really a very big ditch). The main priority, of course, has to be entitlement reform.
So surely our two parties are addressing this problem, right?
Party A is now experiencing a huge surge at the polls from a man who wants to add trillions in new healthcare spending, hundreds of billions in “free” college and hundreds of billions in “jobs spending”. His opponent, now panicking because her second inevitable coronation is threatened, is rapidly moving left, promising even MORE spending. The debate among the Democrats is not about whether the federal government should provide “free” college. It’s about whether rich kids should or should not be included in that largesse.
Party B, however, is not much better. They are talking about big tax cuts combined with huge increases in military spending. Rand Paul, at one of the debates, called the other Republican candidates out on their deficit-busting tax-cut-and-spend plans. He’s now polling too low to even be invited to the debates. Their frontrunner … well, who knows what the hell Trump is saying this week.
This is one of the biggest reasons to be dubious of electing a Republican President while the GOP has Congress. Or, contrarily, the biggest reason to maintain a Republican Congress if a Democrat takes the White House*. Historically, the only way we’ve kept spending under control is to have the first two branches of government in different hands. With another budget apocalypse looming, can we trust the GOP with total control of the pursestrings again?**
(*There are other reasons to want a Republican in the White House: foreign policy, SCOTUS appointments etc.)
(**And before we get into “BUT DEMOCRATS!”, here are the annual budget increases for the last five combinations of President and Congress:
Clinton and Republicans (1995-2001): 3% per year
Bush and Republicans (2002-2007): 7% per year
Bush and Democrats (2008-2009): 9% per year
Obama and Democrats (2010-2011): 5% per year
Obama and Republicans (2011-present) : 0% per year
That last one will go up with the 2016 budget. But not by much.)