Editor's note: This column was authored by Jake Grant.
We can all remember that dreaded moment in school––you just finished a test and just knew you didn’t do well. The teacher tells you that they’ll be passing back the test, and you dread that moment all day. Congress likely had that feeling leading up to the CBO’s semi-annual report, “An Update to the Budget and Economic Outlook.” The update includes two important factors, which likely give members that sinking feeling of failing a test: the tax cut passed in December and the massive spending deal approved in February. The outlook was already dismal, but the update is much uglier.
While the Tax Cuts and Jobs Act generally left fiscal conservatives happy, Congress failed to find and implement spending cuts that offset the loss in revenues. Simply cutting taxes and ignoring spending would have been an irresponsible move. Instead, Congress took it a step further and doubled down on spending, passing a $1.3 trillion budget that left-leaning publication The Atlantic called “A Domestic Budget to Make Barack Obama Proud.” All subcommittees received additional funding from the previous year, despite the cuts that President Trump and the Office of Management and Budget (OMB) requested.
Before this, the budgetary outlook was already grim. When you add in the effects of a $1.5 trillion tax cut and a $1.3 trillion budget deal, it only makes it worse. The 2017 deficit totaled $665 billion, $80 billion more than the 2016 estimate of $585 billion. That estimate has skyrocketed to $804 billion in 2018.
Unfortunately, the key driver of the deficit is spending. No number of tax hikes will sustain the growth in entitlement bills, which forces the need to reform how the nation spends. Raising taxes doesn’t solve the long-term problem, the math simply doesn’t add up.
The 2018 spending estimates were initially trending downwards. The June outlook had total spending at $45 billion less than the previous year, while the updated report has it growing about 4 percent, or an increase of $160 billion. The total spending for 2018 will likely surpass $4.1 trillion. Additionally, the average annual rate of spending growth is projected to be 5.5 percent, resulting in a whopping $7 trillion dollar price tag in 2028.
In regards to debt, CBO estimated in June that by 2027, public debt is projected to total 91 percent of GDP, about 2 percentage points higher than the previous estimate. The April update only takes things a step further. They predict that the federal government will borrow another $14 trillion in the next decade, ballooning debt held by the public to 96 percent of GDP. In other words, this means that debt held by the public will nearly equal the entire economic output of the entire United States. Relative to the size of the economy, that would be the largest since the end of World War II, but unlike the 1940s, it shows no signs of slowing down.
CBO warns of the risk of a fiscal crisis, stating that investors may become unwilling to fund the government’s borrowing without higher interest rates and drastically increasing the amount of interest paid on the debt. They also explain that, “Federal borrowing reduces national saving over time, the nation’s capital stock ultimately would be smaller, and productivity and total wages would be lower than would be the case if the debt was smaller.” To summarize: adding tremendously to the debt and deficit has the potential to cause an avalanche of a serious long-term fiscal crisis.
The updated CBO Budget and Economic Outlook told us more of what we already knew about the country’s fiscal status. It doesn’t take a budget expert to see that cutting taxes and increasing spending is going to move the needle further towards a crisis. While Congress did get a victory on tax reform, increasing spending in all areas to appease Democrats did nothing but mask that political win; CBO’s updated report only proves this.
Jake Grant is the Outreach Director for the Coalition to Reduce Spending and an Advocate for Young Voices. The views expressed are his own and do not necessarily represent the views of his employer. Follow him on Twitter @thejakegrant.