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.