OPINION — This is fiscal insanity.
The federal deficit grew 17 percent to $779 billion in the fiscal year just ended, but that’s not the worst of the problem. By the administration’s own estimate, the deficit will increase almost 40 percent to nearly $1.1 trillion in the current fiscal year. With few policymakers batting an eye, this disturbing trend has no end in sight.
The question now is whether the United States will see its economic future gradually damaged through the erosion of investments, jobs and growth, or whether there will be a financial jolt that results in abrupt, and likely painful, fiscal adjustments.
Both parties have lost their moorings when it comes to fiscal policy. Through a lack of leadership, our nation’s public debt — effectively the sum of our annual budget deficits — has ballooned to $15.5 trillion, more than three-quarters of the entire U.S. economy. Policymakers have sacrificed long-term economic health for short-term political gain by putting tax cuts and spending increases on the national credit card. As we saw recently with the bankruptcies of Sears and Toys-R-Us, there is a limit to how much debt an entity can sustain. While the United States is not about to default and go into bankruptcy, sovereign countries are not immune from market and economic consequences.
The fastest-growing component of federal spending last year was also the least beneficial. It was not Social Security or Medicare or food stamps. In fact, spending on the Supplemental Nutrition Assistance Program — formerly known as food stamps — actually declined, signaling a growing economy that should result in reduced federal deficits. Rather, it was interest payments on our national debt that grew at an alarming 20 percent — to nearly $380 billion. The Congressional Budget Office projects they will surpass all U.S. defense spending by 2023. These hundreds of billions of dollars provide no direct benefit to the American taxpayer, and they squeeze out purposeful spending, whether for national security, domestic social programs or other priorities.
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Some spending needs can arise unexpectedly. Federal disaster relief remains essential to regions recovering from recent hurricanes — and shouldn’t be hindered by an unmanageable debt burden. Similarly, when the next recession inevitably hits, the government may have fewer options to respond. And in the unthinkable event of a large-scale military emergency, choosing between paying debts and defending the nation is the last thing we’d want to face.
The growing debt has serious ramifications for our country and its economy. An out-of-control national debt can directly affect the household finances of millions of Americans by pushing up the interest rates they pay on mortgages, student loans and business debt. This would make getting an education or buying a home more expensive, and businesses would have a harder time expanding. By taking on more and more debt, the federal government is sacrificing economic growth and jobs for future generations.
Instead of offering constructive plans to address the problem, each side blames the other. Some Democratic legislators tout “Medicare for all” and free college, with no realistic plan to pay for them; some Republicans push for extending the fiscally irresponsible tax cuts, which have yet again proved they do not pay for themselves.
While raising taxes on the rich or making cuts to federal agencies (as the president proposed just last week) could be a small part of the solution, proponents of such moves mostly offer them as lip service to the deficit issue. Part of the blame surely falls on us, the pain-intolerant public, who quickly vote against lawmakers who dare to reduce our benefits or raise taxes.
It’s time for both parties to face facts. Dithering only makes the necessary fixes look worse. President Kennedy famously quipped that the time to repair the roof is when the sun is shining. Yet in the tenth straight year of an expanding economy, we are instead partying like there’s no tomorrow, running large and growing deficits. For every year that Congress and the president wait to act, we roll the dice again on the possibility of a major recession or other disaster tipping America’s fiscal situation into deeply damaging territory. So far, luck has been on our side, but we cannot, and should not, count on that.
There are many serious policy proposals from across the political spectrum that could contribute meaningfully to a solution, including Social Security reform, health care delivery system reform, curbing tax expenditures, and adding a carbon tax. Unfortunately, the latest round of fiscal warnings seems to have largely fallen on deaf ears in Washington. The consequences may not be here tomorrow, but they are coming. In the meantime, here’s to hoping our luck holds.
Shai Akabas is director of economic policy at the Bipartisan Policy Center.
Tim Shaw is a senior policy analyst at the Bipartisan Policy Center.
The Bipartisan Policy Center is a D.C.-based think tank that actively promotes bipartisanship. BPC works to address the key challenges facing the nation through policy solutions that are the product of informed deliberations by former elected and appointed officials, business and labor leaders, and academics and advocates from both ends of the political spectrum. BPC is currently focused on health, energy, national security, the economy, financial regulatory reform, housing, immigration, infrastructure, and governance. Follow BPC on Twitter or Facebook.