PRESIDENT OBAMA sounded a triumphant note about the federal government’s fiscal condition in his State of the Union address last week, boasting that the budget deficit has fallen by two-thirds since 2009, his first year in office. He then went on to outline new plans for tax and spending increases, framed as “middle-class economics,” with nary a word about how he would bring down the country’s national debt over the long term. Whereas he entered the White House promising that “some of the hard decisions” about entitlement reform would be “made under my watch, not someone else’s,” Mr. Obama seems inclined to declare victory in the debt battle and pull out.
Now comes the Congressional Budget Office with a useful reality check, in the form of its annual 10-year fiscal forecast. The report contains one solid piece of news in support of the president’s rosy attitude: The cost of health-care reform, once projected by the CBO to be $710 billion between 2015 and 2019, is now slated at $571 billion, a reduction of 20 percent. To be sure, some of that savings appears to be caused by the refusal of many states to join in the Affordable Care Act’s expansion of Medicaid; but much of it reflects declining health-care inflation, which is the opposite of what the law’s critics predicted. Additionally, the CBO report confirms that the federal deficit should remain about where it is now — about 2.5 percent of gross domestic product — through the end of Mr. Obama’s presidency.
Immediately thereafter, however, the deficit begins rising again and the national debt reaches roughly 78 percent of GDP in 2024. That would be a modern peacetime record and double the share of GDP of the debt Mr. Obama inherited. The main drivers of the debt would be retirement and medical programs and increased interest payments, which (along with a few smaller, mandatory spending items) would account for 17.2 percent of GDP. Only 5.1 percent of GDP would go to all other federal discretionary programs, including national defense. These facts, too, concern the middle class, which, as the CBO points out, will have to endure slower growth, higher taxes, insufficient public services or some combination of the three if long-term fiscal balance is not restored.
In short, the fiscal triumph Mr. Obama touts is cyclical, not structural. It reflects the economic recovery, which has brought an increase in tax revenue and a decline in spending on programs that swell during recessions, including food stamps and unemployment insurance. There have been no permanent reforms to the major entitlement programs, which the CBO identifies as the main drivers of future deficits. And given the political deadlock between Mr. Obama and the Republican-majority Congress, there probably won’t be any such reforms before January 2017.
“It’s now up to us to choose who we want to be over the next 15 years and for decades to come,” Mr. Obama declared in his address. On one crucial matter, however — the “hard decisions” about structural debt that Mr. Obama once earnestly promised to make — it appears that the time for choosing has been postponed yet again.