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From bad to worse: America’s deficit and debt
- Public views of economic issues as a top priority have declined significantly since 2010, but there are reasons to be concerned about America’s fiscal outlook.
- According to CBO projections, the federal budget deficit for FY 2019 will reach nearly one trillion dollars.
- The deficit has dire ramifications for the national debt, which is on pace to require annual interest payments larger than the defense budget by 2023.
Amid clashes over border wall funding, the shift of power from one party to another in the House, and an ongoing government shutdown, America’s national attention has been drawn away from long-term fiscal challenges to more pressing and politically hot issues.
The trend is years in the making. A Pew Research Center poll at the beginning of 2018 found, for instance, that public views of economic issues as a “top priority” have declined significantly since 2010. In the place of the economy, jobs, and the budget deficit, issues like the environment, transportation, and addiction are on the rise in the public’s agenda.
While every issue is worthy of a certain urgency, neglecting the government’s long-term fiscal health could prove to be uniquely and exceptionally costly. That was the conclusion, at least, of a recent blog post by the Peter G. Peterson Foundation (PGPF). Based largely off a recent report from the non-partisan Congressional Budget Office (CBO) about America’s economic outlook over the next decade, the post warned that America’s fiscal outlook has gone from bad to worse as the gap between revenues and spending widens due to legislation passed by Congress and signed by President Trump.
This can be seen in two key metrics: the federal budget deficit and the national debt.
The growing deficit
According to CBO projections, the federal budget deficit for FY 2019 will reach $973 billion — and climb well above $1 trillion annually in the years ahead. Aside from spending during the Great Recession and the ensuing aftermath, the United States has never seen deficits this high.
One reason the deficit is so high, the PGPF argues, is that the Tax Cuts and Jobs Act (TCJA) took a huge bite out of corporate tax revenues. The CBO projects that total corporate tax revenue will fall by nearly a third from $297 billion in 2017 to $205 billion in 2018. This is especially worrisome given that the economic growth spurred by TCJA is expected to decline within a few years as America’s population ages and slows labor productivity.
The ballooning national debt
This trend is particularly worrisome given that the national debt rarely increases faster than the economy during strong periods of growth. In fact, according to the International Monetary Fund, the only advanced economy in the world that will increase its debt relative to its size is that of the United States.
Unless the massive deficits projected over the next decade can be brought under control, the federal debt will be set on an unsustainable path. Currently the national debt is approaching its highest level as a percentage of GDP since 1950, when the government’s expenditures had exploded in the wake of World War II. Assuming current law remains the same, the national debt in relation to GDP will reach an all-time high by 2034 and grow to more than 150 percent of GDP by 2048.
As the debt grows, so will the interest payments needed to finance it. The PDPF argues that these growing payments will result in cuts to discretionary programs that Americans care about and depend on, such as education and the military. The next decade alone will hit taxpayers with $7 trillion in net interest costs. By 2020, spending on interest is projected to be greater than what the federal government spends on children. By 2022, it’s projected to top all mandatory federal spending other than Social Security and major health care programs. And by 2023, interest payments servicing the debt will be greater than spending on national defense.
Click here to read more from PGPF about America’s dire fiscal outlook.
Image Credit: Congressional Budget Office / Public Domain