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STILL ANOTHER BUDGET MILESTONE was hit just as the long holiday weekend began last Friday: the gross national debt topped $32 trillion, with no solution in sight. Total red ink will surge to about $50 trillion by the end of this decade.
IF YOU WORRY ABOUT THE DEFICIT (some experts do not), you have to consider radical surgery, but the budget deal that passed a month ago simply nibbles around the edges; the deficit will rise by about $1.5 trillion this year, with little prospect of slowing. Politicians in both parties say the budget deal will cut outlays but in truth the deal will only slow the increase of spending, not actually cut it.
ANY MEANINGFUL REDUCTION of federal spending would require significant cuts to entitlement programs, but the likely 2024 presidential nominees — Joe Biden and Donald Trump — both advocate more spending, not less, on Social Security and Medicare.
TO COMPLICATE THIS OUTLOOK, Congress soon will begin to address the next big fiscal issue: the need to extend the Trump tax cuts, most of which expire in 2025. Keeping all of the tax cuts would add another $2.8 trillion to the ten-year deficit, according to the CBO.
PERHAPS THE BIGGEST BUDGET THREAT is net interest costs, which could consume 40 percent of all federal revenues by 2053. Granted, these long-term estimates are often far off target, but the outlook for this year is more likely: through the first eight months of this fiscal year, which began on Oct. 1, Treasury reported a cumulative deficit of $1.165 trillion; spending has risen by 20% over last year, receipts are down by about 20%.
What are the options?
1. Significant entitlement reform, with aggressive means-testing in Social Security and Medicare. Chances: slim to none.
2. Dramatic spending cuts — with slowing of outlay growth for defense and Ukraine. Chances: possible, as Republicans maintain anti-spending pressure in the House.
3. Higher taxes, targeting wealthy individuals and profitable corporations. Chances: Good if Democrats take the House and keep the Senate and the White House.
ALL OF THESE OPTIONS ARE HUGELY CONTROVERSIAL; still another budget brawl is coming in September. Our bet is that spending will grow much less dramatically than during the pandemic, as most politicians hope that interest rates drop, making borrowing costs tolerable.
BUT HOPE IS NOT A STRATEGY, and by the end of this decade, the prospect of a $50 trillion national debt will have consequences as the population ages. Our bottom line is that the fiscal pig-out that followed the pandemic is long gone — a climate of fiscal restraint will dominate Washington, perhaps through the end of this decade.
Related: Two Wild Cards To Watch in Washington This Summer
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