A report this week offered two insights on the nation’s fiscal future: How big a hole we’re digging, and what it would take to stop.
Let’s start with the hole – one that will be $98.8 trillion deep only 30 years from now. That’s how big the government’s debt held by the public is projected to be by 2048, according to the Congressional Budget Office. The CBO is the nonpartisan government agency that advises Congress regarding fiscal matters.
That “debt held by the public” figure refers to debt borrowed from others. It’s currently $15.45 trillion. The total national debt – $21.1 trillion at the moment – includes that figure plus the money the government has borrowed from itself.
How big are these numbers? The country’s population is about 328 million. Dividing that into $21.1 trillion equals about $66,000 for each American. Both numbers will rise unless something happens to make them stop.
This is bad. No entity, including a government, can increase debt indefinitely. Eventually, a crisis will occur. Even before then, increasing government debt consumes investment dollars that would have been spent on more productive activities. The more the country owes, the less flexibility it has to respond to an unexpected need, such as an economic downturn. Finally, an ever-expanding debt is a threat to national sovereignty. Of the $15.45 trillion debt held by the public, $6.3 trillion is owed to foreign investors. As the Book of Proverbs teaches, “the borrower is servant to the lender.”
Government debt is not new. As far back as 1790, the government owed more than $71 million, and it’s been in debt for almost all of American history. Debt held by the public spiked to 106 percent of gross domestic product during World War II and then fell as a percentage of GDP. As recently as 2001 the total national debt was less than $6 trillion, but it’s increased to more than $21 trillion since then.
This year, debt held by the public will hit 78 percent of GDP. This is only the second time in American history that it’s topped 70 percent. By 2048, CBO projects it will be 152 percent. With GDP projected to be $65 trillion, that equals $98.8 trillion.
These are, of course, projections, not prophecies. CBO bases its numbers on current and foreseeable policies and expected demographic changes. As the baby boomers age, they will consume more Social Security, Medicare and Medicaid. Rising health care costs will affect those last two programs and others. CBO also projects the economy will grow slower – 1.9 percent annually – in the next 30 years than it has in the past, again largely a result of the aging population. The government is paying low interest rates on all this borrowed money. The more it borrows, the more it will pay. Tax cuts and spending increases enacted by Congress in recent months have worsened the red ink, though CBO says the tax cuts will increase GDP by .7 percent annually from 2018 to 2028. It assumes Congress will let the tax cuts expire as scheduled at the end of 2026 – a dubious assumption at best.
In other words, 30 years from now we could be in a deeper hole than CBO is projecting. It could be less deep. But it will be deep either way.
The last time the government was this badly in debt, the country was fighting World War II. Faced with an imminent threat to the country and the world, Americans sacrificed. About 18 million served in the military. More than 400,000 died, leaving behind grieving loved ones. Another 700,000 were wounded. On the home front, basic consumer goods were willingly rationed.
This current crisis – one of our own making – requires far less of us. To keep the debt held by the public at its current 78 percent of GDP, the CBO says lawmakers would have to reduce annual deficits equal to 1.9 percent of GDP. That would mean either increasing revenues by 11 percent a year, or cutting spending by 10 percent, or some combination of the two. That’s about a $1,200 difference in revenues and/or spending per person than we have now.
That seems difficult but doable – certainly much easier than going to war.
Finally, as the CBO points out, the longer we wait, the more unpleasant the fix will be.
That’s usually the case with any problem. When you’re digging yourself into a hole, the sooner you can let go of the shovel, the better.
Steve Brawner is a syndicated columnist in Arkansas. Email him at firstname.lastname@example.org. Follow him on Twitter at @stevebrawner.