Though it isn’t popular to talk about during election season, the Congressional Budget Office this month revealed with alarming clarity the fiscal mess the next president and Congress will have awaiting them next year.
In 2020, the federal government is expected to spend $6.6 trillion, or more than double what the CBO estimates the Treasury will collect in tax revenues. The result is a $3.3 trillion projected deficit, which would be the largest by far in dollar terms and the steepest since World War II if measured as a percentage of the economy.
The difference between World War II and now, however, is that though the United States ran up historic deficits for several years while fighting the Axis powers, the war was a one-off event. Once it ended, the U.S. was able to steadily pay down its debt for decades until it reached manageable levels.
This time, however, is much different. While this year’s extraordinary deficit is mostly due to the actions that Congress took to respond to the coronavirus, as well as the fall in tax revenues stemming from the drop-off in economic activity, the underlying debt was already high due to decades of fiscal mismanagement. And thanks to the refusal of both parties to do anything to reform our broken entitlements, the upcoming years are going to put a great burden on younger generations as the retirement-age population swells and healthcare costs soar.
In 2021, the CBO expects the accumulated public debt to exceed the size of the economy. By 2023, it’s expected to hit 107% of gross domestic product, which would blow past the previous record set during World War II. At no point between 2021 and 2030 will debt be lower than the annual GDP. That means if all of the nation’s output over the course of an entire year were poured into paying off the debt, an absurd proposition, it still would not be extinguished. In dollar terms, public debt is expected to hit $33.5 trillion by the end of the decade.
Unfortunately, you would not know it by the proposals being floated by either presidential candidate. President Trump, who boasted in the 2016 election that he would eliminate the federal debt within two terms, oversaw a dramatic rise in debt even before the coronavirus hit. The second-term agenda he released has nothing to say about deficit reduction. Instead, Trump has promised more tax cuts, infrastructure spending, military expansion, and that he would “protect Social Security and Medicare” (i.e., do nothing about entitlements).
Joe Biden, for his part, has already promised trillions of dollars of new spending. He offered a $2 trillion version of the “Green New Deal,” a $700 billion economic plan, a $775 billion childcare plan, and a $750 billion healthcare plan, among other ideas. Instead of reforming entitlements, he wants to expand Social Security and lower the Medicare retirement age. And if Republicans don’t embrace this radical agenda, he’s floated the idea of eliminating the filibuster to ram through as much spending as possible as quickly as possible.
The 2020 political conversation is occurring in a world in which the U.S. is entering an era of unlimited resources. But the CBO has provided a stark warning that, in reality, the nation is on an unsustainable fiscal path.
