The Federal Government’s fiscal health is reaching a critical condition. Spending is rising at unsustainable rates. Deficits are about to begin swelling, exceeding $1 trillion annually within the next decade. Government debt, already at historically high levels, is on course to exceed the size of the entire economy. If policymakers do not commit to correcting this course now, the result will be mounting debt that overwhelms the economy, and unforgiving changes imposed on the most vulnerable Americans, as major programs collapse under their own fiscal weight.
Deficits Keep Rising
Deficits will nearly triple over the next decade, surging from $487 billion in fiscal year 2018 to $1.4 trillion in 2027, according to the Congressional Budget Office [CBO]. As a share of economic output, deficits will grow to 5 percent of gross domestic product [GDP] in 2027. This pattern is due to excessive spending, not insufficient taxes. CBO projects that starting next year, tax revenue will exceed 18 percent of GDP annually – well above the 17.4-percent average of the past 50 years – but spending will persistently remain above 20 percent of GDP, producing chronic deficits.
Looming Debt Crisis
Because of these chronic deficits, debt held by the public will reach $24.9 trillion at the end of 10 years, or 88.9 percent of GDP – its highest level since 1947 – according to CBO. Gross Federal debt – which includes funds owed to the Social Security Trust Fund and other Federal accounts – is projected to rise from $20.4 trillion at the end of 2017 to $30.0 trillion in 2027. As a result, debt service costs will absorb a rising share of national income, forcing the government to borrow an increasing amount each year – likely in the face of rising interest rates. Ultimately, this dynamic will “crowd out” private investment, sapping economic output and diminishing the country’s standard of living.
Higher Interest Payments
Interest payments – the cost of borrowing – will total a staggering $5.2 trillion over the next decade, says CBO. These payments will come to overwhelm other priorities. Within a decade, the Federal Government will be spending more on interest payments than on national defense, Medicaid, education, and infrastructure (see figure). Within just 10 years, interest on the debt will become the government’s third largest program, following only Social Security and Medicare.
A Moral Failure
When the government habitually borrows for present-day consumption, it imposes the costs on future generations who have no say in the matter and will receive no benefits from it. This is an unacceptable moral failure that threatens to weaken the character of America itself.