On Monday, January 13, the Treasury Department released data showing that over calendar year 2019 the federal government ran a $1 trillion budget deficit. On Tuesday, January 14, candidates for president proposed to make the budget deficit worse.
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Now, to be sure, the calendar year is not the standard unit of measurement for the federal budget – it is the October 1 to September 30 fiscal year. And the $1 trillion barrier is artificial – in the same sense that some people in the early days of jet aviation thought that a pilot who exceeded the sound barrier would have his ears fall off.
A $1 trillion deficit is not a tripwire. But it is far too high. Deficits at today’s level are piling up the national debt faster than our collective income – our GDP – is growing. We cannot allow that to go on. Your family could not survive a mortgage debt growing faster than your income. Neither can your country.
All presidential candidates have a list of things that they want to do – on both the tax and the spending sides of the budget. Those ideas are intended to catch your attention. So naturally, they cost money. Many of those ideas (free health care, free child care, free college) would be highly attractive – if they were really free. But our nation’s economy is already at risk from the burgeoning debt.
And “risk” is the keyword. The public debt, relative to the size of our economy, is approaching its highest level in our nation’s history. But this is not like those record-high-debt days at the end of World War II, when despite all of the blood and the tears, the troops were coming home to work, and the United States dominated the economic world.
Today, the baby boomers are retiring from work, and the rest of the economic world is fighting to take our lunch.
Today’s debt is already zooming at escape velocity. We are one shock – a national security episode, a natural disaster, an international financial crisis – away from a crisis of confidence in our own Treasury. And such a confidence crisis will be like smoke in a crowded theater. Investors will not walk to the exits on our Treasury securities, they will run. And by the time we see that crisis, it will already be too late. Prudent public stewards should not expose our economy to such risks.
But presidential candidates have made expansive promises from the early days of the Republic. And voters always have wanted promises of pleasure, not pain. Time was when the committed public stewards said, and demonstrated, that their plans were “paid for.” You don’t often hear that much from our candidates these days.
But voters who want only expansive promises need to learn a new and painful lesson: “Paid for” isn’t good enough anymore.
Again, the debt is already rising at escape velocity. By an optimistic “baseline” projection – which assumes that Congress will take back all its extant temporary tax cuts and spending increases, which it never does – the debt will grow from 78 percent of GDP today to 92 percent of GDP in 2029, and then on to an utterly unthinkable 144 percent in 2049. That cannot be allowed to happen. That would truly test the faith of international investors in the full faith and credit of the United States of America.
But think what that means if a new management in Washington offers a special on free education or free health care, and “pays for” it with a tax increase or a cut in defense spending: The debt remains right on that glide path to the heavens, that unthinkable 144 percent of GDP in just 30 years. Not only that, but those tax increases and spending cuts will have been used up, and cannot be deployed again to restrain the rising debt.
Even tax cuts that pay for themselves, if you believe in that possibility, are no longer good enough. At some point – we can argue about where – the Laffer curve turns around. A tax cut that generates enough growth to be budget neutral leaves us on a debt-growth path to perdition, with surely less prospect that even greater revenue growth can be had with the next tax cut.
So virtue, in the form of fiscal responsibility, ain’t what it used to be. It’s harder. All of that debt that we had some much fun piling up has made it so.
Vacation is over. It’s time to get to work, whether we like it or not.
Joseph J. Minarik (@JoeMinarik) is senior vice president and director of research at the Committee for Economic Development of The Conference Board. He served as chief economist at the White House Office of Management and Budget for eight years under President Clinton.