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
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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.


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