By Veronique De Rugy
The Congressional Budget Office recently released its long-term budget outlook. There isn’t much new there; we are still in the red, and it will only continue to get worse. Considering the extent of the problem, you would think someone on the campaign trail would pay attention. Yet no presidential candidate really is.
First, CBO projects that the federal public debt-to-GDP ratio will go from its current 75% (up from 39% in 2008) to 86% in 2026 and 141% in 2046. On the deficit side, CBO projects that by 2020, our deficit level will reach $1 trillion, up from its current level of $534 billion. Today’s deficit-to-GDP ratio is 2.9%, and it may be close to 5 percent in 10 years and 8.8% in 2046.
There are a lot of assumptions going into these projections. As we know, a small change in these assumptions can have a significant impact. For instance, the newest projections show a slight improvement over previous projections because of lower-than-expected interest rates. However, CBO warns, a 1% increase in interest rates would propel the debt-to-GDP level to 188%. Gross debt would be much higher.
In addition, we know that many of these assumptions (e.g., that there will not be a depression in the next 30 years and that the unemployment rate will stay consistently at 5% over the next 30 years) are unlikely to materialize, which would make the final numbers look way worse than they do now.
But even without assuming the worst, CBO talks about our dire fiscal outlook, “with debt growing larger in relation to the economy than ever recorded in U.S. history.” Indeed, down the road, debt is projected to reach much higher levels than in the aftermath of World War II, when it stood at 106 percent of gross domestic product. But these levels of debt today are more worrisome than in the 1940s. For one thing, the debt levels in the ’40s were the product of significant increases in war spending, which naturally went down after the war. In addition, the postwar era experienced a fast-growing economy, which also helped lead to major reductions in debt levels.
That is not going to happen today. CBO projects meek economic growth all the way to 2046, along with large increases in spending levels. That means that unless we get a major breakthrough in technology or a life-altering discovery (which could happen, of course), I wouldn’t count on post-WWII reduction in deficits and debt and growth levels.
But debt and deficits are only a symptom of a deeper problem; spending is growing faster than revenue. While revenue will grow from 18.2% of GDP today to 19.4% by 2046 (when the 50-year average will be 17.4%), spending will explode from 21.1% of GDP today to 28.2% of GDP in 2046 (when the 50-year average will 20.2%).
The drivers of our future debt, CBO reminds us, are still the so-called entitlement programs — government-provided health care spending, in particular. It doesn’t mean that Social Security is not a problem, because it is — as is the large growth in interest payments on our debt. But you wouldn’t know that by listening to the vague policy options on the campaign trail or in Washington, where talks of expanding Social Security, adding a public option to the Affordable Care Act and not touching Medicare are very popular.
Each day of the Republican National Convention had a different theme. Monday’s theme was “Make America Safe Again.” Another was “Make America First Again.” Maybe someone should suggest that we “Make America Sustainable Again.”