A new government report has given us a glimpse into our nation’s fiscal future, and the outlook is grim. Absent major reforms, America’s debt will only continue to balloon.
The Congressional Budget Office released its updated long-term budget report on Tuesday, which projects the nation’s fiscal situation for the next 30 years.
Despite the strong economy, the nation remains in a precarious and unsustainable budget position, just as it was last year. Debt held by the public is set to rise to nearly one and a half times the size of the economy in the coming decades.
The report also highlights the high stakes of issues sitting before Congress—namely, whether or not lawmakers pass another budget deal to raise spending caps for fiscal year 2020 and beyond.
The current proposal put forth by House Democrats would raise spending by at least $357 billion over two years, driving long-term debt even higher.
The bottom line is this: If Congress is to avoid a debt crisis, it must implement strong spending restraints now.
The first step is to reject the deal proposed by House Democrats. Instead, Congress ought to prioritize essential federal functions, like national defense, and cut wasteful and duplicative domestic programs that the federal government should have no role in.
Over the long term, cuts to discretionary spending won’t be enough to stabilize the debt.
The true drivers of debt are our major entitlement programs: Social Security, Medicare, and Medicaid. Reforming these programs is essential if the country is to avoid a debt crisis and preserve these programs for the long term.
Here are four key takeaways from the report:
1. The national debt continues to grow at an unsustainable rate.
The Congressional Budget Office projects that by the end of this year, debt held by the public will amount to 78% of gross domestic product.
Over the next decade, debt will grow by another 14 percentage points of GDP, and within 15 years, the national debt will be larger than the economy.
In 30 years, the debt is projected to rise to 144% of GDP, nearly double the current level. And this could be an optimistic projection, since it assumes the 2017 tax cuts are allowed to expire and discretionary spending caps aren’t raised for the next two years.
However, even if the 2017 tax cuts are made permanent (they currently expire in 2025), revenues would still grow because Americans get wealthier over time, and thus more of our paychecks will be taxed at higher tax rates.
If Congress allows the tax cuts to expire, the deficit would still continue to grow because even with increasing revenues, spending grows at an even faster pace.
Under these alternative assumptions, the report projects the deficit could be $774 billion higher than its baseline estimates in 2029. That’s over $2.1 trillion annually.
By 2049, the Congressional Budget Office estimates the national debt could be more than twice the size of the economy—a staggering 219% of GDP and continuing to rise.
2. Another budget deal will make things worse.
As outlined by the report’s alternative fiscal scenario, the decisions Congress makes today have long-term consequences.
The Bipartisan Budget Act of 2018 raised spending by $296 billion over two years. However, estimates showed that the law could add more than $2 trillion in debt over a decade. Only a fraction of the new funding was paid for.
The effects of a two-year budget deal last long beyond that short window.
The Congressional Budget Office estimates that if Congress doesn’t allow the Budget Control Act caps to remain in place for fiscal years 2020 and 2021, discretionary spending in 2029 will be $220 billion higher than it would be by maintaining the caps.
By 2049, annual discretionary spending would be nearly $600 billion higher than it is under current law.
And that’s just assuming that spending “only” grows at the rate of inflation beginning in 2020.
The plan put forth by House Democrats would raise spending by $176 billion in 2020 and $181 billion in 2021, well outpacing inflation. America cannot afford that. Congress instead should refocus federal spending on the government’s constitutional duties.
3. The timing of reform matters.
One takeaway from the report is that the sooner Congress starts implementing reforms, the less painful it will be for Americans.
The longer Congress waits, the more significant and abrupt the policy changes will have to be. These changes would likely come in the form of benefit cuts, higher taxes, or both.
For example, if Congress set a goal of reducing the ratio of debt to GDP to its historical average (42%) over the next 30 years, and started today, it would require a 2.9% of GDP reduction in the primary deficit each year.
However, if Congress waited 10 years to start implementing reforms, the amount of deficit reduction needed to meet the 42% goal would rise to 4.4% of GDP annually.
The Congressional Budget Office suggests that younger and future Americans would pay the heaviest price for delaying reforms, writing that “delaying policy changes would reduce the well-being of younger generations compared with a situation in which policy changes occurred earlier.”
Future generations would likely have lower incomes than their parents and see less economic opportunity throughout their lives.
4. Entitlements and interest on the debt are driving spending growth.
The main drivers of the national debt continue to be Social Security, Medicare, and Medicaid spending. By 2049, the Congressional Budget Office projects that Medicare and Social Security will together contribute to three-quarters of the national debt.
Medicare spending is projected to double over the next 30 years. Over the same period, Social Security and other health care expenditures are projected to grow by 26% and 43%, respectively.
In just 22 years, entitlement spending combined with interest on the national debt will consume all federal revenues.
Net interest payments are projected to rise to nearly 5% of GDP by 2049—a staggering 172% increase compared to this year.
There’s no doubt that entitlement reform is the key to shrinking the national debt and creating a healthy, sustainable budget.
In its alternative fiscal scenario, the Congressional Budget Office estimates that if Social Security benefit payments were limited to the amount of revenue that the trust funds receive each year, the national debt would be 38% of GDP lower than the baseline projections in 2049.
Reforming health care programs could lead to even greater debt reduction. Once the debt stabilizes, the amount of the budget dedicated to interest payments on the debt would decline as well.
There’s No Time to Waste
Unless Congress begins implementing meaningful spending reforms now, mounting debt levels will shackle the economy, meaning a poorer quality of life for most Americans in the years to come. This is not conjecture, but reality.
The first step toward fiscal recovery is to reject another massive Budget Control Act cap deal that could add trillions of dollars in debt over the coming decades. Congress should then implement reforms that control the growth of entitlement programs.
If lawmakers fail to act, they may not pay the price, but future generations of Americans will. The looming debt crisis poses a serious, moral question to each member of Congress: What legacy are you leaving behind?
Justin Bogie is a senior policy analyst in fiscal affairs at The Heritage Foundation.
Editor's Note: This piece was originally published by The Daily Signal.