A Reality Check on the President’s Budget
This week on Facing the Future, host Bob Bixby spoke with Jessica Riedl of the Brookings Institution, about the state of the U.S. federal budget and fiscal policy. Riedl, a seasoned analyst with extensive experience in federal budget and economic policy, offered a critical perspective on the president’s latest budget proposal and the broader fiscal outlook.
A Budget Framed as Defense First
Riedl began by characterizing the president’s budget not as a comprehensive fiscal plan but rather as “a big defense spending request” with “controversial and probably fake offsets” that failed to seriously address mandatory spending or tax revenues, which make up the bulk of the budget. She noted that the budget proposed a staggering 42% increase in defense spending, partially offset by a 10% cut in other discretionary programs such as education and housing.
More concerning was the plan to shift much of this defense spending onto mandatory spending to exploit the reconciliation process—what Riedl called a “get-out-of-jail-free card” that allows budget changes to bypass Senate filibusters. This tactic, she explained, was originally designed to reduce deficits but has since been used to expand them, with nearly $16 trillion added to the national debt through reconciliation since 2001.
Unrealistic Economic Assumptions
Riedl also criticized the budget’s optimistic economic assumptions, calling them “delusional.” The administration assumed a long-term economic growth rate of 2.8% per year, compared to the more realistic 1.8% forecast by most economists.
“You have retiring baby boomers, record low fertility, no immigrants coming in. You’re going to push the labor force growth down to zero,” Riedl said. “So if they’re also going to have growth of 2.8%, that would mean you need to have double the 1.4% productivity rate in the baseline. You would need productivity of the labor force to go from 1.4% growth to 2.8% growth. That is highly unlikely. We haven’t had labor force productivity like that since the 90s with the computing revolution, but it petered out. She also pointed out the contradictory nature of expecting productivity-driven growth without a corresponding rise in interest rates, which under normal economic principles would increase due to higher borrowing demand for new investments.
The Rising Burden of Interest Costs
The interview further illuminated the growing burden of interest costs on the federal budget. Riedl highlighted that interest payments have already surged from 9% to about 18% of tax revenues in just five years and are projected to consume a third of tax revenues within a decade. “All the federal taxes you pay until May 1st will be just paying bondholders,” she remarked, underscoring the unsustainable nature of borrowing primarily for consumption, including entitlement programs like Social Security and Medicare.
Long‑Term Pressures on Social Security and Medicare
Riedl also addressed the long-term challenges facing Social Security and Medicare, warning of “lost time to address” these critical programs. She emphasized the demographic shifts that mean fewer workers will be supporting more retirees, noting, “In 1960, you had 5 workers paying the benefits of each retiree. Right now, it’s 3 to 1, and by next decade, it’ll be 2 to 1.”
This imbalance, coupled with the disproportionate federal spending favoring seniors over children—$10 spent on seniors for every $1 on kids—signals a fiscal path that is “not what a forward-looking society should be doing.”
Closing Thoughts
In closing, Riedl highlighted the importance of reform, especially on entitlement benefits, suggesting common-sense measures like capping Social Security benefits for wealthy retirees. She concluded with a nod to her comprehensive annual chart book on the budget and fiscal environment, offering “132 pages of charts” that challenge conventional wisdom and provide data-driven insights for policymakers and the public alike.
