The most consequential news item of the moment isn’t about the Democratic primary. It’s not about Huawei or Middle East peace talks, and it’s not even about the impeachment trial that both parties swear is the showdown of the century.
A report released by the bipartisan Congressional Budget Office confirms we’re at risk of a fiscal crisis. Absent any major change in nondiscretionary spending, the United States is expected to hit annual deficits of more than $1 trillion indefinitely. But more alarming is the projection that our debt-to-GDP ratio won’t just stay around the 100% threshold achieved during the historically high spending of World War II — we’re slated to blow it out of the water. In 30 years, the CBO estimates that federal debt held by the public will reach 180% of GDP. That’s 30 points higher than the agency projected last June.
In other words, we’ll be spending close to twice of what we accrue in economic output every year, with no signs of a slowdown.
This is an untenable enough situation in theory, and history indicates that this is an unsustainable process. Like Japan, which has one of the highest debt-to-GDP ratios, at more than 200%, a significant portion of our mounting expenditures will come from an aging population draining more from our social insurance programs. But the American situation could prove unique. High debt-to-GDP ratios have periodically arisen in times of war and economic downturns, but none have sustained for long in conjunction with a healthy economy and relative peace.
Contrary to popular opinion, discretionary spending (which includes areas such as defense, homeland security, education, and transportation) already comprises a minority of our federal budget, and the CBO found that this type of expenditure as a percentage of GDP is set to fall in the coming decade. But Social Security as a percentage of GDP will increase by 1.1%, major healthcare spending by 1.6%, and net interest on our debt by 0.8%. Our aging population obviously propels our spending increases for Social Security and Medicare, but a great deal of our healthcare spending comes from Medicaid, which isn’t wholly contingent on age. So, this isn’t a wave waiting to crash until our population is younger. It’s a ticking time bomb that will burst as lenders cease to have faith in the federal government’s ability to pay back its debts.
President Trump promises that we can keep America great without touching entitlements, and Democrats promise to double down on them with increased Social Security benefits and “Medicare for all.” They’re both lying to you, and until one party gains the stones to face facts and slash mandatory spending, we’re headed toward a crisis.
