You might have missed it in the midst of all the presidential campaign follies, but the federal government recently warned of an existential threat. The nonpartisan Congressional Budget Office (CBO) on July 12 released its latest budget outlook. The news isn’t good.
Since 2008, the national debt has nearly doubled as a percentage of gross domestic product. The public debt is now projected to hit 86 percent of GDP by 2026.
And it gets worse. According to the CBO’s projections, the debt will reach 141 percent of GDP in 2046. That would exceed the historical peak of 106 percent that occurred just after World War II.
The public debt is now projected to hit 86 percent of GDP by 2026
In fact, the news is even worse for two reasons. First, as concerning as the CBO’s assessment is, its projections assume that Congress will maintain current caps on discretionary spending. But Democrats are desperate to lift those caps and increase net discretionary spending. Second, even assuming Democrats don’t increase spending, the CBO believes that net interest payments on the debt will rise from 1.4 percent of GDP today to 5.8 percent of GDP in 2046. To put that in perspective, had the U.S. spent an extra 4.4 percent GDP on debt service in 2015, it would have added $790 billion to the federal budget deficit.
In short, America has a problem. Fortunately, the crisis is not inevitable. Solutions are waiting for us, if we have the courage to embrace them.
For a start, we must consider the key driver of the debt: entitlements. As the CBO explains, “by 2046, spending for Social Security and the major health care programs (mostly Medicare) for people 65 or older is projected to account for about half of all federal noninterest spending.” This means that if unreformed, entitlements will crowd out spending on everything else. Whether you care about national defense, education, transportation, every other government priority will be starved.
I’ll offer five entitlement reform proposals of my own next week, but all Americans must start taking entitlement reform more seriously. Some members of Congress are now offering at least one bipartisan proposal. I have some concerns about that proposal’s tax increases, but it is at least a start.
We must also closely scrutinize discretionary spending. In that regard, House Republicans recently suggested reforms to reduce waste and improve outcomes in federal anti-poverty programs. One big idea: if you receive cash assistance or food stamps, you need to work if you’re able. Republicans also chart the vast expansion of means tested benefit payments since 2002. The conclusion is clear: too many are imprisoned to lives of welfare, and too many others are cheating the system. But while some liberal Democrats have attacked the GOP proposals, others have remained silent — suggesting the possibility of future compromise.
Regulations in 2014 cost Americans $1.88 trillion in lost productivity, so cutting regulations by one-third would inject $625 billion into the economy
Overhauling federal regulations would be another way to strengthen the economy and thereby reduce the deficit as a percentage of GDP. As the Competitive Enterprise Institute has noted, regulations in 2014 cost Americans $1.88 trillion in lost productivity. Cutting regulations by one-third would inject $625 billion into the economy. And that matters especially for the poor. Excessive regulations hamper the sharing economy, prevent poorer Americans from accessing reliable banking and restrict private investment in local communities. In response, U.S. Rep. Todd Young (R-Ind.) has introduced the Regulations from the Executive in Need of Scrutiny (REINS) Act, which would require Congress to vote on all new regulations with an economic impact of $100 million or more.
Still, to fully grasp the challenge of budgetary reform, Americans should visit budget simulators like those at Balancing Act, the Committee for a Responsible Budget or the Federal Budget Challenge. These simulators explain how taxpayer money is spent. There are good options, for example, for reducing health care inflation while protecting the poorest Americans. Assessing the budgets of major government agencies, we’re able to ask whether a program remains necessary, or has become unaffordable.
As an extension here, we should also pursue tax reform that reduces rates while closing distorting loopholes. Doing so would raise revenues and spur economic growth. Yet saving America’s future from insolvency also requires our reconsideration of the federal government’s role. Every year, the federal government redistributes hundreds of billions of dollars to the states. Instead, we should empower state governments to take greater control of spending. That reform would shift decision making from Washington bureaucrats and towards local citizens in their communities. It would also end the federal subsidy of liberal politics in states like California.
All this said, our greatest responsibility — Democrats, Republicans and independents alike — is to accept the challenge we face. The CBO has sent out a loud and clear S.O.S. Unreformed, the federal budget will bankrupt the nation and steal the better future of new generations. Accepting that decline isn’t just morally wrong and economically incontinent, it is fundamentally un-American.
Tom Rogan is a foreign policy columnist for National Review, a domestic policy columnist for Opportunity Lives, a panelist on The McLaughlin Group and a senior fellow at the Steamboat Institute. Follow him on Twitter @TomRtweets.