Nearly every part of this latest CBO report is alarming. Most troubling is how much the debt picture has worsened since the CBO’s last estimate in February. The budget deficit for fiscal 2024, which ends Sept. 30, is now expected to be $1.9 trillion — up 27 percent from the previous CBO projection. It is basically double the pre-pandemic level even though the nation is not at war and no longer in a health crisis. And the debt is growing rapidly amid unexpectedly strong economic growth, which usually helps bring deficits down.
Democrats and Republicans alike know the nation is in a difficult budget hole — and just keep digging. They have done it again over the past few months, which is partly why the CBO’s forecast worsened. Some new spending, such as the aid bill for Ukraine and Israel, was justified. Much, however, was not. President Biden forged ahead with more costly student debt cancellation that benefits a select few Americans while doing nothing to make college more affordable. Congressional Republicans demanded that money be clawed back immediately from the IRS, a foolhardy move that the CBO forecasts will reduce revenue by hampering the IRS’s ability to go after tax cheats. These policies are especially reckless at a time of high interest rates: Interest payments this fiscal year will be larger than defense spending.
The CBO forecasts that federal debt will reach 122 percent of economic output a decade from now, a figure that seemed unthinkable in the not-too-distant past. Expenditures are set to rise sharply in the coming decade while revenue remains flat. Republicans portray this data point as proof that the United States has a “spending problem” only, but this is a half-truth. Yes, future deficits are driven by increases in mandatory spending on Social Security and health care, along with interest costs. If we recall correctly, however, the GOP now rejects entitlement reform. The rest of the budget — discretionary spending, including defense — is actually declining as a share of GDP.
If leaders in both parties were interested in getting the nation on a more sustainable path, it actually wouldn’t be that painful. This is the utterly maddening part: Social Security, for example, could be largely fixed by raising the amount of wages on which the government levies Social Security payroll tax, currently capped at $168,600 a year. That would go a long way toward shoring up the program with minimal sacrifice — and no benefit cuts. We laid out a full plan last year. The choice is either make modest changes now or face reduced Social Security benefits in about a decade.
Perhaps because both parties are complicit in it, there’s almost no discussion of debt in the presidential campaign. If anything, the two leading candidates are promising to do things that could make it worse. Former president Donald Trump is touting tax cuts. President Biden is pushing more spending, along with potential tax increases that would not realistically offset it. Both candidates added substantially to the debt during their terms in the White House due largely to expenditures to fight the pandemic. But Mr. Trump’s tax cuts also reduced revenue by nearly $2 trillion, over a 10-year period, while Mr. Biden has increased spending on infrastructure, industrial policy and student debt relief.
Mr. Trump’s tax cuts for individuals are set to expire next year. There will be pressure on Congress and whoever is in the White House to extend them, but that would cost trillions more. And don’t forget: Gloomy as the CBO’s projections are, they are based on the rosy assumption that those cuts will not be extended. Ideally, Mr. Biden and Mr. Trump will be asked about the debt in the upcoming CNN presidential debate. We don’t expect a real answer. But we do expect that the eventual winner, whoever it is, will have to deal with this issue.
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