Washington Must Focus on Fiscal Sustainability This Year

Blog Post
Tuesday, January 02, 2018

Elected officials in Washington know that the federal budget is on an unsustainable path, with the debt projected to rise rapidly over the next 10 years and beyond.

That would be true even in the unlikely event that the tax cuts approved last month were to stimulate the economy as much as Republican congressional leaders and President Trump have promised. Most economists, however, doubt the tax cuts will do so.

So as congressional leaders and administration officials meet over the next few days to make plans for the coming year, they should put a high priority on finding realistic ways to try to put the federal budget on a sustainable path.

Such a path would support long-term economic growth, finance national priorities, avoid destabilizing the financial markets, protect the vulnerable, and shield our children from overwhelming government debt.

This is a tall order, and it will require far more bipartisanship than was seen last year. It will also require more careful legislative planning and greater punctuality in dealing with routine budgetary tasks.

Last year elected officials failed to give fiscal responsibility more than lip service. Unless they do better this year, the government will soon be adding a trillion dollars or more to the national debt each year -- with no end in sight.

This means interest payments will likely be the fastest-rising part of the federal budget in the years ahead. They are projected to total more than $5 trillion over the next decade.

With an aging population and rising health care costs, the government is spending more each year just to provide the same level of services and support to more older Americans.

In addition, the new tax law left in place many of the “tax expenditures” that benefit some individuals and companies while draining federal revenue.

Absent broad fiscal reforms, these factors will squeeze spending on other national priorities and critical investments in the country’s future.

Unfortunately, such reforms now face particularly strong headwinds.

First of all, Trump and many Republicans lawmakers want to substantially increase border security as well as military spending, which already claims a large slice of the federal budget.

Republicans as well as many Democrats are also interested in an infrastructure program that will presumably require a great deal of money -- yet lawmakers have balked for years at such common-sense notions as an increase in the federal gas tax.

Trump says he wants a massive program to “rebuild our country” but has yet to clarify how this might be financed.

It is critical that elected officials pay for any new programs through spending cuts elsewhere in the budget or additional tax revenue. We cannot afford larger and larger deficits, which are particularly indefensible during a strong economy.

Congress also faces a jammed schedule over the next few months, largely as the result of its own mistakes and procrastination.

The congressional budget process collapsed again last year. This means Congress must still approve spending legislation for the current fiscal year, which is already three months old.

This must be done quickly so that the Defense Department as well as other federal offices can plan effectively for the rest of the year, approve contracts, make needed personnel decisions and so on.

To move forward, though, Republicans and Democrats must reach agreement on domestic and military spending levels. So far they have been unable to do so.

In addition, the budget process for the next fiscal year will soon be starting up. The president usually presents his proposed budget for the coming year in February.

Trump and Republican congressional leaders kicked some other responsibilities and difficult decisions into early 2018 as well.

For example, the new tax law eliminated the Affordable Care Act’s individual mandate, a change that is expected to result in higher premiums and more Americans being uninsured.

As even some Republicans who voted for the legislation recognize, Congress must act quickly to deal with the consequences of that change and to demonstrate that lawmakers understand the need for market stability and lower health care costs more generally.

Another critical item: Congress must soon raise the debt ceiling to prevent the government from defaulting on financial obligations within a few months. The Treasury Department is currently relying on accounting gimmicks (generally called “extraordinary measures”) to postpone default.

After a year of highly partisan efforts on tax reform and health care, Trump and Republican Senate Leader Mitch McConnell are now talking about greater bipartisan cooperation, but whether the two parties can work together effectively after the past year remains to be seen.

It is certainly in the country’s best interest, however, for them to make the effort.