Washington policymakers in the past few years have been wildly irresponsible in managing the federal budget.
That’s the obvious conclusion to be drawn from a new analysis of the past decade’s budget developments by the respected centrist Committee for a Responsible Federal Budget. Booming economies usually help annual federal deficits shrink, but, instead, the Trump administration and Congress have overseen a huge increase in deficits, plus a significant hike in the federal debt load.
The latter is especially worrisome. As a percentage of gross domestic product, debt held by the public sat at only 35% just 14 years ago. Now it stands at 79%. Total debt (both held by the public and by other federal accounts, such as the Social Security trust fund) now stands at 105% of GDP.
Again, this growing debt is a particularly bad sign in a growing economy. Not only should annual deficits shrink as tax revenues from a strong economy pour in and as the need for social spending lessens, but total debt to GDP should shrink as well. Even if nominal debt grows slowly during boom times, the rising GDP should make the debt shrink as a portion of the whole.
Instead, the Trump administration has presided over deficits growing by 50% in just two years, from $665 billion to $984 billion. Most of this resulted directly from Trump’s decision to agree to eliminate prior spending caps without any “offsets” (savings elsewhere in the budget) in both 2018 and 2019. Now, trillion-dollar annual deficits are forecast as far as the eye can see.
Meanwhile, lawmakers have done next to nothing to extend the solvency of Medicare and Social Security. Indeed, the latter is on the cusp of running annual deficits of its own, while the “nest egg” of the on-paper trust fund will be depleted entirely by 2037.
Looking further into the future, the federal government’s total unfunded liabilities now top a mind-boggling $122 trillion. Unless we begin to mitigate these trends now, the eventual economic effect will likely be not just recessionary, not just depressive, but cataclysmic.
All of which should be seen as “words to the wise,” except that it appears the nation’s capital has entirely run out of wisdom.
