|Following Trump's huge tax cut for America's most wealthy citizens and corporations, the deficit has increased by 68% since he took office.
Trump promised he would take care of the deficit problem, but neither Republicans or Democrats really want to talk about it.|
The problem can't be solved by a tweet, and most American's have an attention span of five seconds, they will not likely worry about the problem.
Perhaps the greatest money savings has been in the failure to invest in the nation's decaying infrastructure.
WASHINGTON (Sinclair Broadcast Group) — The federal budget deficit nearly hit $1 trillion in 2019 and economists are raising growing concerns about the sustainability of the country’s fiscal path, but discussion of the $22 trillion national debt and what the next president might do about it has been largely absent from the 2020 campaign so far.
The Congressional Budget Office estimated Monday the deficit for fiscal year 2019, which ended Sept. 30, was $984 billion, or about 4.7% of gross domestic product, although final deficit numbers will be released by the Treasury Department later this month. A previous CBO report projected deficits above $1 trillion every year from 2020 to 2029, with government debt totaling close to $30 trillion by the end of the decade.
“Under current law, the federal government is projected to borrow an additional $13.6 trillion from the end of 2018 through 2029, boosting debt held by the public to $29.3 trillion, or 95 percent of GDP, in that year,” an August 2019 update to the budget and economic outlook stated.
Many factors are contributing to the nation’s rising debt, but fundamentally, the government is spending more and more money it does not have without doing anything to increase revenues.
“The near-term deficit is really growing because Congress and the president continue passing legislation without paying for it,” said Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget.
That problem is compounded by long-term structural challenges, including the rising costs of health care and a growing population of elderly baby boomers dependent on the government to provide it. According to Antony Davies, an associate professor of economics at Duquesne University and co-host of the “Words & Numbers” podcast, that amounts to more than $1 trillion in unfunded future obligations to pay Social Security and Medicare benefits for future retirees, and Washington will eventually need to deal with that.
“It’s definitely not sustainable,” Davies said. “It’s mathematically not sustainable. Forget about the politics. Just the budget as it exists right now is on the border of being unsustainable, but that budget excludes unfunded obligations.”
Tara Sinclair, co-director of the George Washington University Research Program on Forecasting, said much of the 2019 deficit was driven by tax cuts President Donald Trump signed in 2017 and increased spending on the military and veterans’ programs. This was the fourth consecutive year the deficit increased as a percentage of GDP, which Sinclair observed is the opposite of the trend economists expect to see during an economic expansion.
“This pattern of deficits is unusual at this point in the economic cycle,” she said. “Typically, we would expect at least some slowing of deficits as a share of GDP, if not some reversal there to potentially even pay down some of the debt in these relatively good economic times.”
The issue of fiscal responsibility rarely tops voters’ lists of concerns, in part because experts say the economy has not experienced any significant negative consequences from rising deficits in recent years. Economic growth held strong in 2018, unemployment is at its lowest level in decades, and interest rates remain relatively low.
“I don’t think the currently high deficits are causing immediate significant damage to the economy but what they are doing is keeping us on an unsustainable trajectory... Your debt can’t grow faster than the economy forever,” Goldwein said.
There are several reasons why experts say the latest budget projections should be concerning for lawmakers and the public. Trillion-dollar deficits increase risks of a broader financial crisis, they crowd out economically beneficial public and private investments, and they leave the country vulnerable to foreign governments that hold U.S. debt.
“If our long-term fiscal imbalance is not addressed, our future economy will be diminished, with fewer economic opportunities for individuals and families, and less fiscal flexibility to respond to future crises,” warned the Peter G. Peterson Foundation.
Forecasts vary regarding how likely a recession is in the next few years, but an eventual downturn is inevitable and economists fear racking up debt now will limit the policy options to mitigate the damage and stimulate growth when the need arises.
According to Davies, it is not imperative that the U.S. government pay off its debt, but it does need to at least keep up with its interest payments. With interest rates low now, that only takes about $500 billion a year. If the Fed needs to raise interest rates to fight inflation in a recession, though, the interest alone could total $1.5 trillion or more, sucking up funds that could otherwise be spent on infrastructure or innovation to boost the economy.
“We’re going to reach a point where we’ve painted the Federal Reserve into a corner,” Davies said.
Not everyone agrees deficits are something to worry about. Some economists, as well as Rep. Alexandria Ocasio-Cortez, have endorsed Modern Monetary Theory, an argument that the U.S. government can essentially pay off its debts by printing as much money as it needs.
“That’s a relatively radical position still,” Sinclair said. “Standard economic theory would suggest that at some stage, if the government continues to borrow, that should put upward pressure on interest rates.”
Trillion-dollar deficits and $20 trillion in debt may seem insurmountable, but gradual changes can make a difference in the long run. Experts say the current health of the economy gives policymakers time to phase in reforms if they act soon.
“For a long time, I believed in and supported the grand bargain...” Goldwein said, referring to the idea of a single compromise that raises revenues, cuts spending, and reforms entitlement programs. “I think our best bet now is to look a little more incrementally.”
That could involve measures to reduce health care costs or prescription drug prices, lowering the government’s Medicare spending liability, he suggested. Then Congress could look at shoring up Social Security or increasing tax revenue.
Davies envisions a more disruptive solution: transitioning younger workers off Social Security over several decades into private investments with higher rates of return while still ensuring older workers receive benefits they have been promised.
“Social Security needs to be wound down,” he said. “It needs to be shut off. It is a Ponzi scheme and every time we tweak the system to extend its life, we kick the can down the road... Every time we kick it, it becomes a larger problem.”
According to Sinclair, the most politically palatable fix would be for the economy to grow fast enough that tax revenues rise without raising rates, but CBO projections do not show growth at that speed. Cutting spending and raising taxes are sure to be less appealing in Washington, and any move that even suggests to Americans they may have to pay higher taxes could prove economically counterproductive if it leads them to spend less and save more.
“Households or businesses might become more concerned about future tax increases and therefore they might be more conservative and possibly bring on an economic slowdown by being more fiscally responsible themselves,” she said.
As deficits continue to rise, whoever wins the 2020 presidential election will be faced with difficult choices, but the dearth of discussion about the government’s fiscal health on the campaign trail has not been encouraging for deficit hawks. In 12 hours of Democratic primary debates so far, no questions have been asked specifically addressing how candidates would tackle the debt.
“With our national debt currently the highest it’s ever been as a share of the economy except right after WWII, how can it be so willfully ignored?” asked Marjorie Margolies, a former House member who lost her seat in 1994 after supporting tax hikes and spending cuts to reduce the deficit, in a Philadelphia Inquirer op-ed last month.
None of the leading Democratic presidential candidates have plans to combat the skyrocketing federal debt on their websites. Proposals to reform Social Security or raise taxes could have the ancillary benefit of reducing the deficit, but most candidates couple those measures with ambitious and expensive new federal programs.
“Not once has anybody said anything about the budget, Social Security, Medicare,” Davies said, adding that Democratic proposals like single-payer health care and the Green New Deal would only result in even bigger deficits.
President Trump rarely discusses the deficit in much detail, typically laying blame for budget shortfalls on his predecessors or congressional Democrats, but his administration’s official position is to drive down the deficit through reduced spending. While his 2020 budget proposal projected slashing the deficit to $200 billion by the end of the decade, he later agreed to a two-year budget deal with Congress that would increase domestic and military spending.
The debt was not a major topic in the 2016 race either. As a candidate, Trump at one point promised to eliminate the debt in eight years if elected, but he rarely provided specifics on how even as he and Democratic nominee Hillary Clinton clashed over the issue in debates.
“Our country has tremendous problems. We're a debtor nation. We're a serious debtor nation,” Trump said during his first debate with Clinton. “And we have a country that needs new roads, new tunnels, new bridges, new airports, new schools, new hospitals. And we don't have the money, because it's been squandered on so many of your ideas.”
After Trump declared the debt a “tremendous” problem and claimed he could fix it in two terms, the deficit has increased by 68% since he took office.
Though Goldwein described deficit spending on that scale in a strong economy as “unprecedented” and a failure of political leadership, he said Trump or his successor could still at least get the nation started on the road toward solvency in the years ahead.
“The whole problem doesn’t need to be fixed by 2020 or 2022,” he said.