If you have a terminal disease and your doctor tells you your prognosis has improved ever so slightly, is that good news or bad news? It’s an important question because the Congressional Budget Office (CBO) delivered exactly that diagnosis yesterday in a new report on the federal budget.
The good news in yesterday’s report is that CBO estimates federal budget deficits will total ONLY $11.4 trillion over the coming decade. That’s down from the previous estimate of $11.6 trillion.
The bad news is the federal budget is still poised to spiral out of control as mounting federal health care costs and surging interest outlays overwhelm projected revenue growth.
CBO projects federal revenue will grow briskly. Over the next ten years, federal revenue is expected to grow 61.3 percent, an average annual increase of 4.9 percent.
So where does the problem lie? It’s spending.
Mandatory spending on major federal health care programs is expected to jump to $2.34 trillion in 2029 from $1.246 trillion this year. That’s an overall increase of 87.8 percent and an average annual increase of 6.5 percent.
It gets worse. The cost of carrying the federal debt is exploding. This year alone, net interest costs will total $382 billion or 45 percent more than just two years ago. By 2029, CBO expects net interest outlays will total $921 billion — a 141 percent increase over this year.
This will place severe pressure on the federal budget. Rising net interest costs are projected to consume 43 cents of every new dollar of federal revenue next year and more than 25 cents of every new dollar over the next 10 years.
That budget pressure leaves very little flexibility for the federal government to make needed national investments or respond to economic or international crises. CBO estimates that the federal government will spend more on net interest than on national defense by fiscal 2025.
The long run budget outlook is truly dismal. But even in the short run, the problem is more severe than most people realize.
According to yesterday’s report, “Relative to the size of the economy, the deficits that CBO projects would average 4.3 percent of GDP over the 2020-2029 period. Other than the period immediately after World War II, the only other time the average deficit has been so large over so many years was after the 2007-2009 recession.”
In other words, the deficits we face over the next ten years are, relative to GDP, 48 percent larger than the 50-year average. Over the subsequent ten years, the budget deficit will grow to more than double [cbo.gov] the fifty-year average.
It gets worse. This bleak forecast assumes Congress will keep the discretionary spending caps in place and allow discretionary spending to fall steadily as a share of GDP, bottoming out at five percent of GDP in fiscal 2029. That’s not likely to happen.
As CBO points out, “Over the past 50 years, discretionary outlays have never been less than 6.0 percent of GDP, and they have averaged 8.4 percent.”
Public policy rarely offers solutions, only trade-offs. But if the federal budget has the equivalent of a terminal disease, there is a miracle cure. The cure consists of reforming the federal government’s major health care programs, restraining spending growth, and having a realistic view of the problem and what it will take to solve it.
James Carter served as the head of tax policy implementation on President Trump’s transition team. Previously, he was a deputy assistant secretary of the Treasury and deputy undersecretary of labor under President George W. Bush.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.
