The rising tide of red ink is undermining the economic and social fabric of the United States. Unchecked deficit spending will impose outrageous debt burdens on future generations.
Unfortunately, neither the Congress nor the president has the political will to deal with the explosion of the nation’s public debt. Michael Tanner, a senior fellow at the CATO Institute, observed, “The dirty secret of Washington is that few lawmakers actually care about deficits or debt.” President Donald Trump’s attitude about debt, as told to The Daily Beast is, “I won’t be here when it blows up.”
At the close of the fiscal year the national debt exceeded $21 trillion. The Congressional Budget Office projects that it will reach $34 trillion in 10 years. During this period federal public debt will increase from 76.5 percent of gross domestic product to more than 96 percent, the highest level since the end of World War II.
The primary drivers of exploding debt are entitlements and debt service, not the Republican-backed tax cuts of 2017. The growth in Social Security and Medicare expenditures results from an aging population and rising health care costs. Interest cost will climb in response to increased deficit spending and higher interest rates.
According to the CBO, between 2018 and 2028 the annual budget deficit will swell from $779 billion to more than $2.1 trillion – an increase in excess of $1.3 trillion.
In testimony before the House Financial Services Committee, Brian Rield, a senior economist at the Manhattan Institute, noted that “additional Social Security and Medicare deficits will account for nearly 90 percent of the $1.3 trillion projected rise in the deficit over the next decade.”
It is unsustainable for the federal public debt to expand faster than the economy forever. David Wessel, director of the Hutchins Center at the Brookings Institution, opined that the U.S. government had to borrow extensively to mitigate the impact of the Great Recession. He warns it’s not clear it could do so again.
Debt payments are already crowding our federal spending for essential services. Today, interest on the federal debt exceeds annual spending for transportation, employment, training and social services.
Increasing federal deficits and debt will also have a dampening impact on business investments, slowing economic growth. Former Sen. Phil Gramm, R-Texas, and Michael Solon, a partner at US Policy Metrics cautioned: “Exploding debt-servicing costs and new federal borrowing could crowd out private borrowing at levels never before experienced in any of the 10 previous postwar recoveries.”
The Hutchins Center also raised concern about the impact of the increasing federal deficit on America’s standard of living, “since more than 40 percent of federal debt is held by foreigners, practically China and Japan.”
There are no easy answers to re-establishing sound fiscal policies. The best antidote is economic growth, but this will not be enough. Structural reforms will be needed. Some options include:
• Reform the federal budget process by prohibiting Congress from passing budgets increasing national debt as a share of the overall economy.
• Control health care costs by allowing Medicare to negotiate with drug companies, and the purchase of health insurance across state lines.
• Secure Social Security for future generations by gradually increasing the retirement age, raise the annual limit on earnings subject to the payroll tax and reforming the Social Security disability system.
Breaking political gridlock will be difficult. Republicans must stop worshiping tax cuts, and Democrats entitlement expansions.
The nation’s debt crisis will be addressed when both political parties see no option but to move out of their comfort zones.
Gary Sasse is founding director of the Hassenfeld Institute for Public Leadership at Bryant University.
