Just how far have budget deficits drifted off the radar screen of presidential politics? Here’s one indicator: Last week, the nonpartisan Congressional Budget Office (CBO) issued its annual “Budget and Economic Outlook” report – a detailed examination of White House and congressional policies – and hardly anyone paid heed. The inattention is striking because the report was full of sobering news.
Cumulative deficits over 10 years (2016 to 2025) are now projected at $8.5 trillion, up from a $7 trillion estimate in August. Federal debt held by the public – the total of all past deficits – is projected at $22.4 trillion in 2025; in 2016, it’s $13.9 trillion. By 2025, the debt would equal 84 percent of the economy (gross domestic product) compared with 74 percent in 2015. Many economists think the rising debt unsustainable.
Almost half the spending growth over the decade comes from two programs – Social Security and Medicare. Much of the rest stems from other health programs (Medicaid, the Affordable Care Act) and from interest on the debt. The projected annual interest payments rise from $223 billion (1.3 percent of GDP) in 2015 to $772 billion (2.9 percent of GDP) in 2025. Meanwhile, other programs, from defense to the courts, are squeezed.
The CBO believes the U.S. economy will grow more slowly. Since World War II, the U.S. economy has generally averaged 3 percent annual growth or better. Now, the CBO thinks realistic growth is around 2 percent. Part of the decline reflects retiring baby boomers leaving the workforce. The rest is something of a mystery. Regardless, slower economic growth squeezes tax revenues. It’s harder to service the debt.
It’s no secret why deficits are shunned. Take-away politics – raising taxes, cutting popular subsidies and handouts – is unfriendly. People deplore deficits, but they don’t deplore the programs and tax breaks that create the deficits. Plus, the budget numbers are mind-boggling. In 2016, the federal government will spend $3.9 trillion. Social Security is $910 billion. Numerous small programs cost a few billion. Ordinary people have a hard time getting a handle on these stupendous sums.
So the candidates evade. They pile expensive proposals atop existing deficits, as if they didn’t exist. Sen. Bernie Sanders wants to nationalize health care and make public college free. Hillary Clinton wants more spending for child care, clean energy and infrastructure. Donald Trump’s tax plan would cut government revenues by $9.5 trillion over its first decade, says the nonpartisan Tax Policy Center. Claims that these proposals would be “paid for” by either new taxes or spending cuts should be treated skeptically.
But unpopularity isn’t the only reason politicians dodge deficit-fighting. There’s a deeper cause: It’s hard to see immediate gains, either economic or political, from reducing deficits; most plausible gains are hypothetical and are years away. Democratic political systems aren’t good at making present sacrifices for uncertain future benefits.
Generally, there are three arguments for deficit reduction: (1) Large government deficits will “crowd out” private business investment, weakening gains in living standards; (2) Persistently big deficits will make it harder for government to borrow in the future to meet national emergencies – war, depression, a pandemic; (3) The risk of a financial crisis grows if investors, already holding massive amounts of Treasury debt, refuse to accept more without steep increases in interest rates that would spread throughout the economy.
All these possibilities are plausible. They are made by respectable authorities, including the CBO. The trouble is that the same arguments have been made for years, and as yet, the worst fears haven’t come true. Some economists think, in present circumstances, the government’s capacity to borrow is huge. Indeed, its borrowing costs are at historically low interest rates, about 2 percent on 10-year Treasury notes. In the short run, aggressive deficit reduction might temporarily slow the economy.
The result is an expedient case for doing nothing. It should be rejected. What we need is a debate over the role of government, and the reason transcends economic prudence (If we ignore the economic dangers of excessive debt, we are more likely to bring them on). The status quo also skews government spending away from future needs and toward subsidizing retirement. We need to move gradually toward a better balance: longer working lives and skimpier subsidies for affluent elderly.
Based on the campaign so far, this important conversation seems unlikely. The leading candidates are playing Russian roulette with the nation’s future, assuming that deficits can be ignored because most Americans (or so it seems) would prefer it that way.
Robert J. Samuelson is a columnist for the Washington Post.
Subscribe to the Morning Review newsletter
Get the day’s top headlines delivered to your inbox every morning by subscribing to our newsletter