To govern is to choose. By that definition, the United States is not, at present, being governed. Or so one could reasonably conclude from the latest Congressional Budget Office assessment of the federal government’s fiscal condition, released last week. That document shows that the country remains on a path toward eventual fiscal crisis, because Congress and the Obama administration have failed to agree on a long-term plan to match current spending plans, most of which take effect automatically, with projected revenues.
To be sure, the annual federal deficit is way down from its recent alarming peak; CBO’s deficit forecast for the current fiscal year, 2.9 percent of gross domestic product, compares to 10.8 percent in recession-racked fiscal 2009. Economic recovery, low interest rates engineered by the Federal Reserve, higher income taxes on top earners and the budget-cutting measure known as sequestration have all helped slow the red ink. Indeed, CBO thinks that deficits should remain below 3 percent of GDP through 2018, a slightly more optimistic view than it expressed in its last update four months ago.
Small wonder that debt and deficits have practically vanished from political debate; neither party is pressing the issue in this year’s elections. The problem, however, is the long term. CBO identifies no scenario under which national debt drops below 72 percent of GDP over the next decade; that’s far above historical norms. It reaches 77.2 percent of GDP in 2024, at which point it starts rapidly increasing again. Future deficit increases are driven by health care, Social Security and interest payments. Those three categories of automatic spending account for 85 percent of the increase in outlays CBO predicts between now and 2024. For what seems like the umpteenth time, CBO warns, correctly, that this is dangerous because there is always the chance of a bond market rebellion that would precipitate “fiscal crisis.”
The more insidious risk, which CBO also identifies, is the impact of chronic borrowing on the government’s budget priorities. CBO forecasts assume, albeit unrealistically, that Congress and the president will keep sequestration and other current law unchanged throughout the next decade — which is undesirable to put it mildly. Why? Because the rest of the federal budget besides entitlements and interest — education, medical research, highways, national defense — will meanwhile fall to 5.2 percent of GDP, the lowest level since 1940. By 2024, we will be spending half as much on defense and twice as much on interest as we did 50 years earlier, CBO says.
From the Ebola outbreak in West Africa to the emergence of the Islamic State in the Middle East, events remind us that the U.S. government must respond to the unpredictable crises and threats of a changing world — which might yet include another economic downturn necessitating fiscal stimulus. Government cannot meet such challenges if existing resources are committed by past promises on entitlements and taxes. Only by reforming both, so as to reduce spending and enhance revenue, can the U.S. regain its financial sustainability — and policy latitude. There would be costs, economic and political, in the short run. The reward, for politicians and the public, would be the freedom once again to choose.
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