There are few characteristics of human nature that are more immutable than the tendency to be focused on the short term.
And just like a heart patient straying from his diet as time passes after his heart attack, the political class has collectively decided to tune out the federal debt as an issue.
Between 2009 and 2012, the federal government ran deficits exceeding $1 trillion per year, for a total of $5.1 trillion over four years. During this time, the issue of deficits and debt became a prominent part of the national political conversation.
In contrast, a Congressional Budget Office report released Wednesday projected that the deficit for fiscal 2014 would narrow to $506 billion. Given that the annual deficit is now projected to be a substantially lower and there is no longer a scary-sounding “trillion dollar deficit” talking point, the debt has receded as an issue.
Yet the main problem was never the short-term deficit, but the longer-term fiscal imbalance.
Even when deficits were at elevated levels during the economic downturn, the CBO had been projecting that they would narrow during the middle of the decade as the economy improved and the federal government collected more tax revenue, only to grow again as spending accelerated at a faster pace.
This general trend is still the case. Though the size of deficits is expected to be relatively stable through 2017, they are expected to increase every year after that and reach $960 billion by 2024, the end of the projection period.
To be clear, it’s perfectly feasible for an economy with the strong credit rating of the United States to sustain massive short-term deficits, because the expectation is that the government will be able to pay back investors over time. This was the case during World War II, when deficits exploded, only to recede in the decades that followed.
What’s different now is that that the federal debt is not only at historically elevated levels, but it is expected to continue to pile up.
In 2014, the cumulative debt held by the public is expected to exceed 74 percent of the nation’s economic output. According to the White House Office of Management and Budget, that is more than double where it was in 2007, before the financial crisis hit, and the highest level since 1950, just after World War II.
In a report released in July, CBO projected that government debt would continue to grow, and within 22 years would equal the size of a year’s economic output.
Liberals, to the extent they have acknowledged any debt problem exists, have attempted to pin the blame on taxes being too low.
But CBO data show that low tax revenues are not driving the long-term problems. Over the next decade, revenue is expected to be more than 18 percent of gross domestic product, which is slightly higher than the historical average. The problem is on the spending side.
Federal spending is expected to grow because of the aging population, rising health care costs, increased spending on health care subsidies through President Obama’s health care law, and larger interest payments on the mounting debt.
The CBO report warned that a “large and increasing amount of federal debt would have serious negative consequences” including rising interest payments, lower economic growth, and reduced policy flexibility during emergencies. In addition, it would “increase the risk of a fiscal crisis (in which investors would demand high interest rates to buy the government's debt).”
Washington can ignore the nation’s mounting debt problem, but that won’t wash it away.