On September 30, the federal government ended fiscal year 2020 with a budget deficit of $3.1 trillion. At an estimated 15.2 percent of gross domestic product (GDP), it was the largest deficit since 1945.
On October 7, a fly nestled in Vice President Pence’s hair during a televised debate with Kamala Harris, the Democrats’ nominee for Vice President.
The fly got a lot more attention than the deficit.
It’s no secret that the nation’s deteriorating budget outlook has played no role in the presidential debates or the campaign at large.
On one level, that is perfectly understandable. We are still in the grip of a pandemic that has sickened more than 750,000 Americans, killed more than 215,000 and devastated the economy. Cases are on the rise again in many states. Bringing the virus under control and providing needed support for families, business, and state and local governments remains the top priority, even if it means adding more to the debt. We need to know what the candidates would do about these pressing near-term issues if elected.
The campaign, however, should also have a longer-term perspective.
Whether it’s Trump or Biden, whoever is elected president in November will be called upon to treat both the current crisis and the pre-existing conditions that afflicted the economy before the pandemic hit. With only one scheduled debate remaining between the presidential candidates, voters need to hear about and evaluate the candidates’ plans for the next four years, not just the next few months.
The main reason for voters to be concerned about the budget is not the size of the deficit or the debt in any particular year, but their projected paths in the years ahead. While deficits can be an appropriate near-term response to an economic or other emergency, such as we’re facing now, allowing the debt to grow faster than the economy over a long period of time ultimately slows growth and income from what they would be otherwise.
There is a direct link between the candidates’ fiscal policy proposals and their economic visions for the nation.
As explained by the Congressional Budget Office (CBO), “High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.”
Even before the COVID-19 pandemic hit, the budget was on an unsustainable path and recent projections by the CBO indicate that our budget problems won’t end with the pandemic. After the major spike in deficits caused by the pandemic wanes, the budget will be left with annual shortfalls in excess of $1 trillion. Significantly, CBO projects that the deficit will begin to turn upward again by 2025, the last year of the next presidential term.
Debt held by the public is projected to increase from 98 percent of GDP this year to 107 percent of GDP by 2025, exceeding the record high set at the end of World War II, and will continue rising indefinitely after that, reaching 195 percent of GDP by 2050.
The reason is simple. Benefit programs such as Medicare, Medicaid, and Social Security will grow faster than revenues as the population ages (meaning more beneficiaries) and the per-person cost of providing health care rises. The massive deficits caused by this built-in mismatch will result in higher interest costs on the debt, even if interest rates remain low. In CBO’s projections, the combined cost of the major health care programs, Social Security, and interest on the debt exceeds all revenues by 2036.
Meanwhile, CBO warns that absent corrective actions, the finances of Medicare and Social Security will deteriorate over the next presidential term.
Both programs are already running annual cash shortfalls, which increase pressures on the overall federal budget. According to CBO, Medicare Part A is facing trust fund insolvency by 2024. The Social Security Disability Insurance trust fund will be insolvent by 2026 and the much larger Social Security Old Age and Survivors trust fund will run dry in 2031.
Aside from these dubious milestones, the president elected this year will also face pressure to decide what to do about billions of individual tax cuts enacted in 2017 that are scheduled to expire at the end of 2025.
Presidential campaigns provide a valuable opportunity for voters to hear and assess the candidates' ideas on how to address the nation's major challenges. While many such challenges exist, the nation's unsustainable budget policy hangs over all of them, because it affects the resources that can be devoted to competing priorities and the size of the future economy that will be called upon to produce those resources.
Voters should not have to wait until the winter of 2021 to find out how, or whether, the next president plans to achieve a sustainable budget. They should hear about that during the campaign when they can assess the candidates’ proposals and make informed judgments on their credibility.
With the budget already on an unsustainable track, new tax-cut or spending proposals -- no matter how attractive in the abstract -- will need to be paid for or the debt burden will simply expand. And even if new promises are fully paid for, there is the remaining question of how to close the structural budget gap we already have.
The fly went away after a couple of minutes on the Vice President’s head. The debt will be around a lot longer and will not just fly away. It deserves more attention.
Review the "Key Issues for the Candidates on the Post-Pandemic Budget" below for a deeper dive on key trends and topics on which candidates for president should be discussing in more detail.