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COMMENTARY: Costly Decade to Come

August 26, 2016

Weekly Wastebasket Volume: XXI No. 34

 

“In fiscal year 2016, the federal budget deficit will increase in relation to economic output for the first time since 2009, the Congressional Budget Office estimates. If current laws generally remained unchanged … deficits would continue to mount over the next 10 years, and debt held by the public would rise from its already high level.”

So starts the Congressional Budget Office’s (CBO) annual update to its budget and economic outlook. While the language is kind of boring and gray, the underlying data can put your hair on fire.

At $590 billion, the FY16 deficit will be one-third ($152 billion) larger than last year’s. Truth be told, a portion ($41 billion) is because some payments due fiscal year 2017 will be made this year because the start of the fiscal year falls on a weekend. But even taking that into account, the FY16 deficit will be three percent of Gross Domestic Product, eclipsing last year’s 2.5 percent of GDP.

To put $590 billion into perspective, the amount is equivalent to more than half the discretionary budget. It exceeds the base budget for the entire Pentagon. It’s a scary, big number. It’s not as big as the deficits in the Great Recession, but the economy has been in recovery for several years.

By 2026, CBO projects a budget deficit that is 4.6 percent of GDP – an amount that is “considerably larger … than its average over the past 50 years.” Debt held by the public will go from 77 percent of GDP to 86 percent in 2026. Net interest – the money Uncle Sam pays to service that debt – would soar from $248 billion this year to $712 billion in 2026, or a 187 percent increase. That is an amount of money that exceeds total Pentagon spending today, just going out the door to pay for our current excesses.

The numbers reflect the challenges we as a nation face. It makes sense to live within our means. We just haven’t done it. Spending has exceeded revenues all years since 2001. In fact there have only been a dozen years since WWII when revenues outpaced spending. The problem is clear: Rapidly growing major entitlement programs (e.g. Social Security, Medicare), increased discretionary spending, and slower growth in revenues. Mandatory spending is predicted to grow nearly 80 percent over the next decade while discretionary spending will grow a little more than 20 percent. Revenues are projected to grow roughly 50 percent.

It doesn’t have to be this way. This isn’t the right season but these projections are like the Ghost of Christmas Future. The next President and Congress can have an awakening that leads to major tax and entitlement reforms – something along the lines of the so-called grand bargain that President Obama and Speaker Boehner tried to hammer out. But leadership, sacrifice, and political courage are required to get that done. There are no short-cuts--no Super Committees, Simpson-Bowles Fiscal Commissions or Budget Control Acts to save the day. Policymakers will have to roll up their sleeves, dive deep into the policy well, and come up with tough answers. And Americans will have to swallow hard and show support for the much-needed reforms. 

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