The Congressional Budge Office announced today that the deficit will exceed $1 trillion this year and will continue to widen each year over the coming decade:
The U.S. government’s budget deficit is projected to reach $1.02 trillion in 2020, according to a report released Tuesday by the nonpartisan Congressional Budget Office, as the federal government continues to spend much more than it collects in tax revenue.
A combination of the 2017 tax cuts and a surge in new spending has pushed the deficit wider. This year would mark the first time since 2012 that the deficit breached $1 trillion, a threshold that has alarmed some budget experts because deficits typically contract — not expand — during periods of sustained economic growth.
Tax cuts and new spending have contributed to rising deficits, but they are a relatively small portion of an ocean of red ink we are currently facing in the form of entitlement spending. Manhattan Institute fellow Brian Riedl testified before the Senate Governmental Affairs committee today that entitlements and not tax cuts are the real drivers of our future deficits:
A portion of the underlying deficit is driven by the $250 billion annual cost of the recent tax cuts, and the $150 billion annual cost of the higher discretionary spending caps.. However, that combined $400 billion to $500 billion cost will remain relatively steady if extended. It does not explain the $1.3 trillion rise in projected red ink between 2019 and 2029.
Instead, nearly the entire surge in red ink will come from adding 74 million baby boomers to the Social Security and Medicare systems…
The annual Social Security and Medicare shortfalls (and their interest costs) will jump from $440 billion in 2019, to $1,656 billion a decade from now. These $1.2 trillion in additional Social Security and Medicare deficits will account for 90% of the $1.3 trillion projected rise in the annual deficit over the next decade, according to the CBO current-policy budget baseline.
Riedl goes on to argue that the long term outlook, i.e. beyond the ten year budget window, is even worse:
According to CBO, between 2019 and 2049, Medicare is projected to run a $44 trillion cash deficit, Social Security will run an $19 trillion cash deficit, and the interest on the resulting program debt will be $40 trillion (chart 5). (To adjust these 30-year totals for inflation, trim by one-third.) Rather than self-finance through payroll taxes and premiums, these two programs are set to add $103 trillion to the national debt. The rest of the federal budget is projected to run a surplus over the next 30 years.
Here’s a chart he prepared showing the long-term outlook of tax cuts compared to entitlements over the next 30 years:
Riedl has a long portion of his document dealing with both conservative and liberal fantasies about how this problem can be solved. For instance, it’s one thing to argue the government’s role in antipoverty programs is a costly failure, but there is no universe in which cutting this spending can make up for the deficits created by Medicare and Social Security:
Over the past 15 years, congressional GOP blueprints have typically imposed nearly all the first decade’s cuts on antipoverty programs (Medicaid, ACA subsidies, SNAP [aka food stamps], and others) as well as nondefense discretionary spending, such as education, veterans’ health, homeland security, medical research, and infrastructure. This pot of spending—7% of GDP and declining—would have to be mostly eliminated to balance the budget a decade from now.19 These cuts will never be passed by any Congress, as their advocates on Capitol Hill and in top think tanks surely know. While there are any number of failed and unnecessary programs in need of major reform, proposals to eviscerate these entire categories of spending while letting Social Security and Medicare off the hook are a politically delusional distraction.
On the other hand, Riedl says the progressive fantasy that a single-payer program will solve this deficit problem is also a delusion:
When confronted with rising Medicare and Medicaid costs driving federal deficits, a popular response on the left is to propose single-payer health care. The theory here is that a fully socialized health plan would drastically slash costs to families and the federal budget.
The budgetary impact of single-payer health care has been widely debated over the past two years. However, it is important to emphasize that the estimated $30 trillion to $40 trillion federal cost of singlepayer refers only to the federal cost of bringing those under 65 into the Medicare program (and expanding benefits for the elderly). It does not include the cost of closing the existing $44 trillion shortfall for those age 65 and older. In other words, even a “fully-funded” single-payer program would finance only the federal expansion, not the Medicare system’s baseline shortfall of $44 trillion. Perhaps lawmakers should figure out how to pay for the current Medicare system before pledging $30 trillion to expand it.
Obviously what is needed is entitlement reform to bring long-term spending back in line with revenues but doing that seems difficult at a time when impeachment is driving the partisan divide.
Sen. Romney has proposed a plan called the Time to Rescue United States’ Trusts (TRUST) Act. The TRUST act would create bipartisan rescue committees made up of elected representatives from both the House and Senate who would meet to propose changes to stabilize each of the major federal trust funds. Is this kind of bipartisan compromise still possible? I’m not sure but it seems preferable to running directly into a wall of insolvency while interest costs eat up an ever-increasing portion of our budget. Here’s Romney talking about the TRUST Act earlier today: