A Crappy Job on the U.S. Debt, Deficit, and Growth

President Obama and House Republicans are punting on a problem bigger than Obamacare.

President Barack Obama delivers his State of the Union speech on Capitol Hill on January 28, 2014 in Washington, DC.
National Journal
Ron Fournier
Feb. 6, 2014, midnight

Pic­ture your base­ment. Now pic­ture your base­ment with a huge pipe spew­ing raw sewage. You call a plumb­er and he dawdles be­fore par­tially plug­ging the pipe. The sludge rises a tad more slowly, but your base­ment quickly fills. “Here’s the bill,” the plumb­er says. “My job is done.”

This is the crappy way in which the White House and Con­gress are hand­ling the U.S. debt, de­fi­cit, and eco­nom­ic growth.

In this meta­phor, the sewage mount­ing in the base­ment is the debt, the amount owed to U.S. cred­it­ors plus in­terest paid on those bills. It is $17.3 tril­lion.

The sewage pour­ing out of a par­tially plugged pipe, adding to the mess, rep­res­ents the de­fi­cit, the dif­fer­ence between ex­penses and rev­en­ue in a single year. The Con­gres­sion­al Budget Of­fice es­tim­ates that the de­fi­cit will total $514 bil­lion this fisc­al year, com­pared with $1.4 tril­lion in 2009.

The plumb­er is Pres­id­ent Obama, House Re­pub­lic­ans, and every oth­er pub­lic ser­vant who brags about de­fi­cit re­duc­tion. In his State of the Uni­on ad­dress, Obama pat­ted him­self on the back for over­see­ing “de­fi­cits cut by more than half.”

He’s tech­nic­ally right, but so was the plumb­er. Like a base­ment filled floor-to-ceil­ing with sewage, the U.S. budget is a stink­ing, suf­foc­at­ing mess that won’t be easy to clean up.

The reas­ons why were spelled out in a CBO re­port this week. While its find­ings on the Af­ford­able Care Act were in­tensely covered ( in­clud­ing here and here ), little at­ten­tion went to CBO’s con­clu­sions about debt, the de­fi­cit, and eco­nom­ic growth.

Debt: Ac­cord­ing to the bi­par­tis­an CBO, the amount of debt re­l­at­ive to the size of the eco­nomy is at near-re­cord highs. It will equal 74 per­cent of gross do­mest­ic product by the end of this year and 79 per­cent in 2024. At its cur­rent rate, the debt will be an un­fathom­able 100 per­cent of GDP by 2038.

“Such large and grow­ing fed­er­al debt could have ser­i­ous neg­at­ive con­sequences,” CBO says, “in­clud­ing re­strain­ing eco­nom­ic growth in the long term, giv­ing poli­cy­makers less flex­ib­il­ity to re­spond to un­ex­pec­ted chal­lenges, and even­tu­ally in­creas­ing the risk of a fisc­al crisis (in which in­vestors would de­mand high in­terest rates to buy the gov­ern­ment’s debt).”

De­fi­cit: Un­der cur­rent budget laws, the de­fi­cit is pro­jec­ted to de­crease again in 2015 — to $478 bil­lion, or 2.6 per­cent of GDP. (In oth­er words, the flow of sewage slows.) “After that,” CBO says, “de­fi­cits are pro­jec­ted to start rising — both in dol­lar terms and re­l­at­ive to the size of the eco­nomy — be­cause rev­en­ues are ex­pec­ted to grow at roughly the same pace as GDP where­as spend­ing is ex­pec­ted to grow more rap­idly than GDP.” (The plumb­er’s stop­gap won’t hold.)

The reas­on is that spend­ing on Medi­care, So­cial Se­cur­ity, and oth­er en­ti­tle­ments will grow as the na­tion’s pop­u­la­tion ages, CBO says, as will the mount­ing in­terest cost on the fed­er­al debt. By con­trast, all non-en­ti­tle­ment spend­ing is pro­jec­ted to drop to its low­est per­cent­age of GDP since 1940. That in­cludes money for edu­ca­tion, in­fra­struc­ture, and oth­er pro­grams be­loved by voters and re­quired to trans­form the United States eco­nomy for the 21st cen­tury.

In oth­er words, halv­ing the de­fi­cit in re­cent years did noth­ing to fix the ac­tu­al prob­lem. Back to our meta­phor: Your base­ment stinks.

Growth: CBO ex­pects eco­nom­ic ex­pan­sion to slow after 2017 to a pace be­low the av­er­age seen over the past sev­er­al dec­ades. “That pro­jec­ted slow­down mainly re­flects long-term trends,” CBO says, “par­tic­u­larly, slower growth in the labor force be­cause of the aging pop­u­la­tion.”

Obama chooses not to talk about this three-tiered crisis be­cause solv­ing it re­quires a re­duc­tion in en­ti­tle­ments, a fact that his polit­ic­al base re­fuses to ac­know­ledge des­pite the un­as­sail­able math­em­at­ics.

Just a year ago, he said that “the biggest driver of our long-term debt is the rising cost of health care for an aging pop­u­la­tion” and ar­gued that “those of us who care deeply about pro­grams like Medi­care must em­brace the need for mod­est re­forms — oth­er­wise, our re­tire­ment pro­grams will crowd out in­vest­ments we need for our chil­dren, and jeop­ard­ize the prom­ise of a se­cure re­tire­ment for fu­ture gen­er­a­tions.” He offered mod­est en­ti­tle­ment re­form to House Re­pub­lic­ans in ex­change for a tax in­crease.

The GOP base op­poses any new taxes, ig­nor­ing, like lib­er­als do, the un­dis­puted fisc­al real­it­ies. Hav­ing re­luct­antly agreed to tax hikes after the 2012 elec­tion, House Re­pub­lic­ans re­jec­ted Obama’s pro­pos­al in 2013, while privately leav­ing the door open to rais­ing taxes in the guise of broad­er tax re­form. The White House didn’t be­lieve — or chose not to be­lieve — that Re­pub­lic­ans would budge, and gave up. Hopes for a “grand bar­gain” col­lapsed.

And so now Con­gress must vote to raise the debt lim­it — to pay the bills it has already au­thor­ized. Don’t be­lieve Re­pub­lic­ans who ar­gue that re­fus­ing to raise the lim­it is fisc­ally re­spons­ible. They have already made their choices. So have Obama and his fel­low Demo­crats.

Our lead­ers chose to play polit­ics and punt the prob­lem to fu­ture lead­ers, whose choices will be ex­po­nen­tially few­er and harder than had Wash­ing­ton ac­ted in the present day. Their leg­acy is soiled, their mes­sage to the next gen­er­a­tion of Amer­ic­ans clear: Here’s the bill. My job is done.

{{ BIZOBJ (video: 4716) }}

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