Congress and the White House are gearing up for their latest epic battle — over funding the federal government for another 10 weeks. Meanwhile, their fiscal policies have put the United States on a long-term path of increasing debt, rising interest rates, needlessly crimped growth and fewer and fewer dollars for many of the programs Americans care most about.
That’s not the picture the White House generally paints. President Obama and his team talk as if they’ve gotten the deficit more or less under control, because the short-term trend has brightened. The federal debt, having soared from 39 percent of the gross domestic product at the end of 2008 to 73 percent this year, is on track to decline to 68 percent by 2018. Thereafter, though, it will begin to rise again, reaching 100 percent of GDP 20 years later. Only one other time in U.S. history has debt exceeded 70 percent of the national economy — around the end of World War II.
These estimates come from the scrupulously nonpartisan Congressional Budget Office, and they actually underestimate the danger: This is the rosy scenario. That’s because the CBO takes Congress at its word that it is going to reduce discretionary spending — on defense, homeland security, national parks, education, scientific research and more — to about two-thirds the historic average relative to the size of the economy. Unlikely. In addition, the CBO figure doesn’t account for the ways in which growing debt is likely to slow economic growth. When the CBO includes that effect, debt rises to 108 percent of GDP by 2038.
Neither party’s orthodoxy bears much relationship to this unsustainable prospect. Democrats like to say the country has a “revenue problem,” but the CBO assumes that revenues will rise to 19.7 percent of GDP by 2038, compared with an average of 17.4 percent over the past 40 years, and the deficit widens anyway. Republicans are fixated on Obamacare, which does have a role in this story but not a starring one: Its increases in health-care coverage account for less than a fifth of the projected growth in health-care and retirement spending that the CBO forecasts over 25 years (and other aspects of the law reduce costs). The aging population and the relentless growth in health-care costs overall — even accounting for the recent deceleration in that growth — are the main culprits.
Medicare and Social Security remain on track to crowd out other spending, slow economic growth and leave the government paying more in interest costs — 5 percent of GDP by 2038, compared with an average of 2 percent over the past 40 years. The longer policymakers wait to address these issues, the harder it will be, not least because the interest will keep piling up.