With the recent onslaught of crisis-driven news — everything from 40-year high inflation, war in Ukraine, Supreme Court rulings, and mass killings — it is easy to forget some festering problems that lawmakers have ignored for years. These problems have not gone away or even become less important. They have just become less visible.
Two official reports published within the past weeks should serve as a wake-up call: the new federal budget baseline from the Congressional Budget Office (CBO) and the Social Security and Medicare Trustees reports.
On May 25, the nonpartisan CBO released its Budget and Economic Outlook for Fiscal Years 2022-2032. In it, CBO projects declining deficits in 2022 and 2023, but this is largely the result of fading COVID relief and an unexpected revenue surge from a rapidly inflating economy. Even with these favorable budget developments, the deficits in 2022 and 2023 remain near $1 trillion and hover close to 4% of GDP. By comparison, deficits have averaged 3.5% of GDP over the past 50 years.
The “good news” of declining deficits in this report is illusory because it merely reflects where we were in 2019 before the COVID pandemic hit. In fact, CBO projects that the deficit in 2023 will be exactly the same as it was in 2019 — $984 billion.
The more significant point, however, is that under CBO’s baseline projections, which assume that current laws remain in place, deficits begin rising again in 2024 and continue rising throughout the 10-year period, reaching $2.2 trillion or 6% of GDP by 2032.
As a result of these escalating deficits, total debt held by the public will grow from $24 trillion (98% of GDP) in 2022 to $40 trillion (110% of GDP) in 2032, more than double the average over the past 50 years and exceeding the highest level previously recorded in our nation’s history during World War II.
There is no secret as to why this is happening. Three categories of spending, Social Security, the major healthcare programs (mainly Medicare and Medicaid) and interest on the debt grow by a collective 3.7% of GDP over CBO’s 10-year outlook, while all other spending is projected to shrink relative to GDP. Revenues remain relatively flat. By 2032, these dynamics mean that Social Security, healthcare, and interest will consume 88% of revenues in CBO’s projections. Interest on the debt alone will equal or exceed the entire defense budget by 2029.
Moreover, there is reason to believe that these projections are optimistic due to scoring conventions that CBO is required by law to use. They assume, for example, no further spending on COVID or Ukraine. They also assume that certain tax cuts enacted in 2017 will expire as scheduled after 2025, bringing in additional revenue; and they assume that the Federal Reserve Board will be able to tamp down inflation without causing a recession.
If the CBO report wasn’t enough to set off alarm bells, it was soon followed by the 2022 report of the Social Security and Medicare trustees, released on June 2. This annual report is designed to give the public and lawmakers an update on the financial condition of these two large and growing programs.
The bottom line is that the combined Social Security Old Age and Survivors (OASI) and Disability Insurance (DI) trust funds are projected to be depleted in 2035 at which point the program would be able to pay just 80% of promised benefits. As for Medicare, the Hospital Insurance fund (HI) is projected to be depleted in 2028. At that point, it would only be able pay 90% of its costs, jeopardizing access to hospital services for beneficiaries.
These projected trust fund depletion dates have not changed much in recent years, but they loom ever closer with each report and the remedies become more difficult. Ten years ago, the trustees estimated that it would take a 21% payroll tax increase or a 16% across-the-board benefit cut to achieve 75-year trust fund solvency for the combined Social Security trust funds. In this year’s report the needed tax increase has grown to 26% and the benefit cut has grown to 20%.
We are kidding ourselves and burdening future generations if we think that none of this matters.
Ignoring our long-term structural fiscal and economic problems will not make them go away. The longer we wait to act, the more difficult the solutions will be — and the greater the risks will be to the nation’s future. As the fiscal debate turns to the post-pandemic economy, policymakers should craft an agenda that is both pro-growth and fiscally responsible. An agenda premised on ever-low interest rates and ever-rising debt is not a solid foundation for a sustainable budget or a growing economy. It is a fantasy.
Robert L. Bixby is executive director of The Concord Coalition.
This article originally appeared on Portsmouth Herald: Commentary: Federal deficit is the problem lawmakers ignore