The 2020 campaign for president has provided plenty of opportunities for our political leaders to define our nation’s most challenging issues. We are hearing a good deal from candidates about health care, national security, immigration, gun policy, education, climate change, and the economy.
One important issue that has largely been ignored is the management of the U.S. budget deficit and long-term debt.
Over the first four months of the current budget year — October-January — the annual deficit has increased 19 percent from a year ago. After eight years, America is once again on the fiscal path to record a $1 trillion annual deficit and will be borrowing money to meet expenditures.
Long-term debt now $23.25 trillion
The Congressional Budget Office (CBO) projects the annual deficit will remain above $1 trillion through the next decade unless current plans are changed. Meanwhile, the long-term debt is now $23.25 trillion. That’s 23 followed by 12 zeros or more than $65,000 for each American.
President Donald Trump’s budget plan, announced on Feb. 10, for the 2021 fiscal year proposes spending $4.8 trillion. He calls for holding down the deficit by making cuts to domestic programs like food stamps and Medicaid. The plan projects that if Congress goes along with the president’s spending cuts — which is highly unlikely — the budget would return to balance in 15 years.
The U.S. government first ran $1 trillion deficits from 2009 through 2012 as revenues fell during the worst recession since the 1930s. Spending increased for safety-net programs such as unemployment benefits and to rescue banks and auto companies after the 2008 financial crisis, which began during the final year of President George W. Bush’s term and continued four years under President Barack Obama. As a candidate in 2016, President Trump proposed an eight-year plan to end the deficits.
Spending grows faster than revenue
According to the Committee for a Responsible Federal Budget, “rising long-term deficits are driven by a disconnect between spending and revenue. In particular, spending on Social Security, the major health programs, and interest payments on the debt will grow faster than revenues over the long term.”
Over the next three decades, CBO projects spending will grow from 20.7 percent of GDP to 28.2 percent by 2049 – well above the post World War II record of 24.4 percent of GDP and even farther above the 50-year average of 20.3 percent of GDP.
Revenue will also rise, though not nearly as quickly. CBO projects receipts will grow from 16.5 percent of GDP in 2019 to 18.3 percent by 2029 and will further climb to 19.5 percent of GDP by 2049. The 50-year average for revenue is 17.4 percent of GDP and the post-World War II record of 20 percent set in 2000.
What to do?
Americans deserve to know about the views of national policymakers, especially from presidential candidates and those seeking election to the U.S. Congress, regarding our nation’s fiscal solvency.
Here is a checklist of five factors shaping how to approach the key debt/deficit issues, prepared by economists at George Mason University.
- Tax hikes of various kinds must be on the table.
- Mandatory spending (mostly Social Security, Medicare, and Medicaid) is 70 percent of federal spending.
- Defense is the largest discretionary spending program.
- Mandatory spending, already built into budget building by law, is growing faster than discretionary spending.
- There are about $6 trillion in potential options for savings over the next decade, according to the CBO, which deserve consideration to help our nation turn the fiscal corner.
Minnesota comedian Louie Anderson once famously said in a stand-up routine, “We all think we’re going to get out of debt.” He got a good laugh. The audience, I suspect, was not based in Washington, D.C.
Chuck Slocum is president of The Williston Group, a management consulting firm. He has long been active in a national initiative to “Fix the Debt” and can be reached at Chuck@WillistonGroup.Com
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