WASHINGTON -- The Concord Coalition expressed deep concern today over new Congressional Budget Office (CBO) projections that show federal deficits and debt rising rapidly despite healthy growth in the economy and an historically low unemployment rate. Over 10 years, the deficit is projected to increase by $11.6 trillion with the debt projected to grow from 78 percent of GDP to 93 percent.
“Coming on the first day when the federal government is fully back to work following a record long shutdown, today’s CBO update is a timely reminder of how detached our budget debates have become from policies to address the nation’s main fiscal challenges,” said Robert L. Bixby, Concord’s executive director.
“The alarming deficit picture during a period of economic growth reflects the continuing failure of elected officials in Washington to put the nation on a more sustainable fiscal course. At a time when we should be seeing annual federal deficits shrink, they are projected to average over $1 trillion annually for the next decade.
“While Congress and the president have been haggling over whether to keep the government open, Washington has neglected the growing pressure on the budget from automatic spending programs and from the widening gap between federal spending and revenues,” Bixby said.
The big automatic spending programs -- notably Social Security and Medicare -- are growing rapidly because the aging population means large numbers of people are leaving the workforce each year and becoming eligible for government benefits. In addition, the continued rise of health care costs pushes this spending up further.
The existence of positive trust fund balances in Social Security and Medicare should not obscure the fact that their negative cash flows contribute to projected deficits. According to the CBO, the cash deficits for Social Security and Medicare Part A will total nearly $3.2 trillion over the next 10 years.
As the result of tax legislation approved in late 2017, federal revenues have not gone up as much as would have been expected in a strong economy. If those tax cuts are extended, instead of expiring in 2025, the CBO projects revenue will be an average of 0.5 percent of GDP lower than the historical average over the decade. This would coincide with a time when spending is projected to average 2.4 percent of GDP higher than the historical average.
In some ways today’s numbers reflect an optimistic scenario. The CBO’s projections are based on current law. The CBO also specifies an alternative scenario based on extending the tax cuts and continuing current spending policies that would lead to an additional $3.8 trillion in deficits over the 10-year window.
While the economy is currently growing and the unemployment rate is low, the CBO report has some grim news for the future, with economic growth slowing from 3.1 percent in 2018 to 2.3 percent in 2019, to 1.7 in 2020, and then averaging 1.8 percent through the rest of the decade. While some of that slowdown is because of the diminishing effects from the 2017 tax cut, the primary culprits are structural: the aging population leading to a declining labor force, and a decline in labor productivity.
“Congress and the President need to begin working on solutions to these structural economic impediments. Tax cuts haven’t and won’t fix declines in labor force growth and productivity. Instead, fixing our immigration system has the potential to increase labor force growth while smarter and fiscally responsible investment, retirement and health care policies could help boost needed economic growth more generally,” said Joshua Gordon, Concord’s policy director.
In the short-term, there are sure to be more pitfalls ahead. Even if there is an agreement to fund the government fully for the rest of the fiscal year in two weeks, Congress will immediately face very difficult choices in discretionary spending programs for the Fiscal Year 2020 appropriations bills. Because of caps on such spending, defense and non-defense programs are facing cuts of 10 percent each.
“The CBO’s projections,” Bixby says, “should make it clear to President Trump and the new Congress that broad fiscal reforms are urgently needed. The longer we wait, the more difficult the solutions will be -- and the greater the risks will be to the nation’s future.”
Media Contact: Joshua Gordon, [email protected], (703) 894-6222