The federal debt recently passed the $22 trillion mark at almost the same time the Congressional Budget Office released its latest long-term budget outlook showing that even worse budget numbers are coming down the pike, with forecasts of an additional $11.6 trillion in debt over the next decade. But even that CBO forecast is overly optimistic, as an honest accounting would show trillions more in red ink. And yet, few politicians are taking this fiscal reckoning seriously.
Budgetary rules set by Congress require CBO to establish its budget projection based on current law, which gives the appearance of producing less red ink than is likely. CBO’s projection includes the sunset of many of the reforms enacted in the Tax Cuts and Jobs Act, despite previous experience with the Bush tax cuts when Congress extended much of that law to protect Americans from a massive tax hike. CBO’s baseline also includes expiration of full expensing for certain business investments (extending this would be very positive for economic growth) and counts on revenues from several Obamacare taxes that have already been either suspended or delayed. If CBO took these factors into account, the adjusted realistic revenue baseline would be $1.6 trillion lower.
CBO’s official projection also short-changes the amount of likely spending because of spending caps enacted in the 2011 Budget Control Act. However, as CBO noted, Congress has already blown through these caps multiple times to allow for $439 billion in additional expenditures. Assuming that Congress yet again overrides these budgetary restraints, and accounting for more realistic assumptions regarding emergency spending, the deficit will widen by $1.9 trillion. This spending spree will also increase the cost of interest payments on the debt to the tune of at least $590 billion. CBO also warns that if interest rates turn out to be just 0.1 percent higher than projected, another $182 billion would be added to the debt service costs.
Add everything up and there is nearly $4.1 trillion in additional red ink over the next decade than is reflected in CBO’s official projections.
The growing debt would be less of a concern if it was outpaced by economic growth and if there was a viable plan to stop overspending, but this isn't the case. In late 2017 Congress enacted the Tax Cuts and Jobs Act to reform the tax code and stimulate long-term economic growth, all while knowing that over the short-term, revenues would be lower than previously projected. However, just a few months later, Congress yet again increased the Budget Control Act’s statutory caps on spending.
So far this year, voters are hearing very little from our elected leaders about solutions to the looming budget crisis. In his State of the Union Address, President Trump touted the economic benefits that have accrued as a result of tax reform and regulatory relief under his administration, but he failed to mention the mounting risks of overspending. And while his budget proposals have included many notable reform ideas, he has also frequently stated that reform of major entitlement programs, the main drivers of government overspending, are off the table. Meanwhile, on the other side of the political aisle, Democrats are pushing for Medicare for All, which would pile on another $32 trillion in federal spending, a nearly incomprehensible number.
This realistic policy baseline is a stark reminder that Congress has difficult work ahead to put its fiscal house in order. A new approach is needed to restore common sense to budgeting and in the numbers used to forecast the budget.
Demian Brady is the Research Director for the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy education and research at all levels of government.
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