US News & World Report: America's Debt Dilemma
Article By Andrew Soergel on US News & World report
The U.S. has a debt problem.
America is more than $21.2 trillion in the red, and annual deficits are only expected to swell in the years ahead.
The White House last week quietly conceded that its initial budgetary estimates for the next few years are unlikely to materialize as planned. In February, a preliminary presidential budget proposal projected deficits of $7.1 trillion over the course of a 10-year window. But updated estimates indicate that initial benchmark was off by more than $900 billion, with annual deficits eclipsing $1 trillion as soon as next year.
"This is a striking acknowledgment following almost two years of claims that economic growth unleashed by [tax cut and spending hike] policies will wipe deficits away," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement on Tuesday. "On our current course, debt will overtake the size of the entire economy in about a decade, and interest will be the largest government program in three decades or less. This will weaken both our economy and our role in the world."
Deficits aren't entirely new for the U.S. government – the U.S. less than a decade ago registered annual deficits north of $1 trillion as the government attempted to pull the country out of the worst economic crisis since the Great Depression.
What is new is that the U.S. is taking on considerable annual debt and injecting fiscal stimulus into the economy at a time when business is booming. The U.S. economy is in the midst of its second-longest expansion on record, and interest rates – although rising steadily as the Federal Reserve adjusts policy to keep up with inflation – are still relatively low.
"Last time the nation experienced trillion-dollar deficits – during a serious economic downturn, no less – lawmakers took the issue seriously," MacGuineas said, noting the pay-go laws and spending caps implemented during President Barack Obama's presidency to keep debt levels under control. "This time around, with the emergence of trillion-dollar deficits during a period of economic strength – when we should be saving for future downturns – few seem to even take notice."
To be fair, lawmakers on both sides of the aisle have acknowledged a long-term debt problem. The issue has been how best to go about addressing it. Republicans have mostly argued that social spending programs should be curtailed to bring government spending more in line with expected revenues. Rising Social Security and Medicare spending as baby boomers age into their retirement years are expected to put considerable strain on federal budgets in the years ahead, though finding a politically palatable solution to possibly curtailing recipients' benefits has to this point proven difficult. Democrats, meanwhile have lashed out at tax cuts and alterations that they argue primarily benefit large businesses and wealthy citizens.
The Committee for a Responsible Federal Budget criticized House Ways and Means Chairman Kevin Brady, R-Texas, on Wednesday, after the lawmaker suggested last week's White House deficit revisions were "not because of the tax cuts."
"It's all on the spending side," he said.
The committee rated that claim "largely false," estimating "a combination of tax cuts and spending hikes enacted this year are responsible for four-fifths of the deficit increase – and more than half of that is from tax cuts."
Nonpartisan analysts suggest the situation ultimately boils down to a mounting long-term debt problem that certainly isn't being helped by the recent tax overhaul.
One of the tax overhaul's primary selling points was that it would kick-start economic growth and pay for itself in the years to come. And although analysts believe positive aspects of the tax tweaks have already begun trickling into economic indicators, many have compared the effect to a "sugar high."
When that high fades, some analysts are concerned that the U.S. will be staring down a recession – without many options for reversing course, especially with long-term interest rates still sitting at levels below historical norms.
And with deficits already considerably swollen, lawmakers may have a tough time justifying spending their way out of the problem. Publicly held federal debt stands at 77 percent of the nation's gross domestic product (GDP) – well above where it sat when the Great Recession hit in 2007. As America's debt obligations and interest payments mount, federal dollars will be tied up that could otherwise be directed elsewhere – namely, into social service programs that have increasingly been discussed as being on the chopping block. And as interest rates rise, the costs associated with paying off that debt become more daunting.
"The last decade has been disastrous for the federal government’s finances," James Capretta, a resident fellow at the conservative-leaning American Enterprise Institute think tank, wrote in a blog post last month. "The more the federal government borrows and spends when times are good, as they are today, the less room there will be to borrow and spend when times are bad, as they inevitably will be at some point."
Henry Paulson, the former Treasury secretary under President George W. Bush who was in office when the U.S. first entered the Great Recession, warned at an event hosted by the Brookings Institution earlier this week that "if we don't act, [the deficit issue] is the most certain fiscal or economic crisis we will have."
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