Are We Heading Back Toward $1 Trillion Budget Deficits?

Congressional auditors urge lawmakers to alter tax and spending policies to prevent a fiscal fiasco.

National Journal
Billy House
April 14, 2014, 1:25 p.m.

The na­tion is doomed to re­turn to tril­lion-dol­lar short­falls by 2024 if law­makers don’t al­ter ex­ist­ing tax and spend­ing policies, con­gres­sion­al aud­it­ors warned on Monday.

The cul­prits? Rising health care costs, an aging pop­u­la­tion, grow­ing in­terest pay­ments on fed­er­al debt, and an ex­pan­sion of fed­er­al sub­sidies for health in­sur­ance, ac­cord­ing to the Con­gres­sion­al Budget Of­fice.

This rising debt would have ser­i­ous con­sequences, CBO warns. Fed­er­al spend­ing on in­terest pay­ments would in­crease con­sid­er­ably, and law­makers would have less flex­ib­il­ity to use tax and spend­ing policies to re­spond to un­ex­pec­ted chal­lenges.

“Fi­nally, high debt in­creases the risk of a fisc­al crisis in which in­vestors would lose so much con­fid­ence in the gov­ern­ment’s abil­ity to man­age its budget that the gov­ern­ment would be un­able to bor­row at af­ford­able rates,” the re­port states.

Des­pite the grim tid­ings, con­gres­sion­al Demo­crats seized op­tim­ist­ic­ally on a smal­ler as­pect of the re­port: that the fed­er­al gov­ern­ment’s sub­sudies for the health care ex­change premi­ums un­der the Af­ford­able Care Act will be lower than pre­vi­ously pro­jec­ted.

CBO found that be­cause the ex­change premi­ums them­selves will cost less, the gov­ern­ment’s share of those will amount to about $1.032 tril­lion between 2015 and 2024 — $104 bil­lion less than pre­vi­ously pro­jec­ted.

The news comes dur­ing a time when the U.S. has made a deep dent in its de­fi­cit. The fed­er­al de­fi­cit lingered above $1 tril­lion from 2009 to 2012, reach­ing high­er than $1.4 tril­lion in 2009 amid the re­ces­sion. But the short­fall dropped to $680 bil­lion in fisc­al 2013. And CBO’s latest pro­jec­tions Monday show the de­fi­cit con­tinu­ing to drop to $492 bil­lion this fisc­al year and then to $469 bil­lion in 2015.

CBO also notes that 2014 would be the fifth con­sec­ut­ive year in which the de­fi­cit has de­clined as a share of gross do­mest­ic product, since peak­ing at 9.8 per­cent in 2009 — a year in which gov­ern­ment spend­ing was revved up to help stim­u­late the eco­nomy.

Re­l­at­ive to the size of the over­all eco­nomy, the $492 bil­lion de­fi­cit for fisc­al 2014 — at 2.8 per­cent of GDP — will be nearly a third less than the $680 bil­lion short­fall in fisc­al 2013, which was equal to 4.1 per­cent of GDP.

But after 2015, CBO says that it will start to rise and could reach $1 tril­lion in 2022 through 2024.

CBO’s fig­ures are known as “baseline pro­jec­tions,” show­ing what would hap­pen to the fed­er­al budget if cur­rent laws re­mained in place. They are de­signed to give Con­gress a bench­mark against which to meas­ure the ef­fects of pro­posed spend­ing and taxes.

“The latest budget num­bers show that while we are ex­per­i­en­cing a tem­por­ary im­prove­ment to our de­fi­cit prob­lems, long-term debt trends re­main very troub­ling,” said Maya MacGuineas, pres­id­ent of the Com­mit­tee for a Re­spons­ible Fed­er­al Budget and head of the Cam­paign to Fix the Debt. “What’s more, the num­bers will likely be even worse after 2024 if we don’t take ac­tion soon on tax and en­ti­tle­ment re­form.”

“The ana­lys­is makes it clear that this is no time to put new policies on the na­tion’s cred­it card or use phantom sav­ings,” she ad­ded. “In­stead of pat­ting them­selves on the backs for mod­est im­prove­ment in the near term, poli­cy­makers should be us­ing this peri­od of re­l­at­ive calm to make real pro­gress on our long-term fisc­al chal­lenges.”

Mean­while, Sen­ate Budget Com­mit­tee Chair Patty Mur­ray, in a state­ment, honed in on CBO’s find­ings that the cost of the gov­ern­ment sub­sidies tied to ex­change premi­ums un­der the Af­ford­able Care Act will fall by $104 bil­lion over 10 years. The re­port also pro­jec­ted that 25 mil­lion people will buy in­sur­ance through those ex­changes by 2017, an in­crease of about 1 mil­lion over its earli­er pro­jec­tion.

“Today’s CBO up­date shows once again that the Af­ford­able Care Act will help re­duce our de­fi­cits while of­fer­ing more Amer­ic­ans ac­cess to qual­ity, af­ford­able health care,” Mur­ray said. “We need to keep build­ing on this pro­gress.”

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