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The Congressional Budget Office (CBO) has released its updated budget projections, and there's no sugar-coating the numbers. The federal government’s annual budget deficits were already slated to start rising again in 2016, but thanks to some discouraging economic growth predictions and a bloated budget deal that added tens of billions in new spending, we’re now looking at returning to trillion dollar annual deficits in only six years (2022).
This spending hemorrhage is bleeding our wealth straight into our nearly incomprehensibly large national debt. Most alarming is that the new debt would mostly be held by the public. Out of our $19 trillion in total debt, it's the $13 trillion in public debt that is really important, because that's the money that the government owes to outside holders of U.S. treasuries, including other countries. With the new deficit projections, that $13 trillion number is expected to increase to $23.8 trillion in ten years. Just the yearly interest payments alone on that incredible and unprecedented level of national debt are projected to nearly quadruple over ten years, from $223 billion to $830 billion.
That means in ten years, we'll be spending more - a lot more - on preventing a default on our debt than on national defense. In fact, servicing our debt will be the third largest item in our budget, exceeded only by Social Security and Medicare.
Speaking of those two programs (and Medicaid, and food stamps, and other welfare)… in 2015, automatic off-budget entitlement spending cost about twice as much as everything else the government does (defense, education, research, regulation, etc.). Within ten years, that ratio will widen to nearly 3 to 1 – we’ll spend $4.1 trillion on entitlements compared to $1.4 trillion on other programs.
Take a look at the CBO’s numbers for yourself HERE.
None of these threats are terribly new - politicians and policy wonks alike have been sounding the alarm on our increasingly impossible fiscal situation forever. What's different is that the difficult decisions these numbers will force us to confront aren't really future problems anymore. By the time we get to the point where we truly can’t afford our safety net programs anymore, it’s already too late to fix them without a lot of pain.
The first obvious point raised by these troubling new statistics is that we need to unlock the growth potential in our economy in a big way. Held back in part by stifling regulations and convoluted tax policy, along with the highest corporate tax rates in the developed world, our economy’s growth is sputtering along at a rate that only slightly exceeds the growth of our nearly $19 trillion debt. These obstacles, along with general uncertainty about what new roadblocks the government will spring on them, have led so many companies and entire industries to sit on large quantities of capital.
While the fundamental problem our government faces remains one of excess spending, not insufficient revenue, a freer economy and the wealth creation it would provide would make reforming the welfare state far easier. This is both because more growth equals more revenue and lower deficits, and because increased prosperity would reduce the number of people who are dependent upon the government’s safety net.
None of this will replace the need for a fundamental restructuring of the big entitlement programs to make them sustainable, but unshackling the economy would buy some much needed time.