Just when you think things couldn’t get worse on the fiscal front, Washington once again manages to exceed expectations. One couldn’t help but get that impression from the latest update to the nation’s (poor) budget situation.
The Congressional Budget Office (CBO) recently released revised estimates of the nation’s budget and economic outlook over the coming years. While the prior version of the document, released in February, didn’t exactly show a fiscally responsible federal government, the intervening four months saw lawmakers digging taxpayers — that’s you and me — into an even deeper hole.
More Spending by Congress and Biden
Overall, CBO increased the estimated budget deficit for the current fiscal year (which ends on Sept. 30) by $408 billion and the 10-year budget deficit by nearly $2.1 trillion. A breakdown in the report shows the major causes of the worsened financial conditions.
The (bloated) spending bills passed in March added nearly $1.3 trillion to the 10-year deficit, as higher spending this fiscal year leads CBO to assume (not incorrectly, in most cases) that spending will continue at those higher levels in the future.
Spending on Medicaid and Obamacare subsidies will increase deficits by $511 billion in the coming decade, in large part because more people will continue signing up for “free” coverage. The budget office also noted that “the recent surge in immigration [has] made more people than CBO previously estimated eligible for” Obamacare subsidies, accounting for an increase in projected enrollment.
The Biden administration’s student “loan forgiveness” will cause the deficit to grow by $145 billion this fiscal year alone, and because the administration has not finalized several of its regulatory proposals, CBO has yet to put the full fiscal effect of these giveaways onto the federal government’s books.
Even though the budget gnomes assumed that changes in economic projections since the last estimate (primarily higher income tax receipts) will reduce the budget deficit by $568 billion, the effect of Washington’s spending overwhelmed the comparatively good economic news, leading CBO to raise deficit projections overall.
Profligacy at the Wrong Time
The fact that Washington continues to spend even as the economy grows is the one major warning in the CBO report. A deficit equaling 7 percent of GDP in the current fiscal year would far exceed the deficits run during the 1980s when Democrats derided Ronald Reagan’s economic record and tried to force Republicans in Congress to raise taxes. And as it did in February, the budget office noted that the federal government is running deficits that Washington has never before attempted to sustain for a long period.
Of particular concern: Interest costs continue rising to record levels as a percentage of the country’s economy. Interest costs are projected to exceed the size of the defense budget this fiscal year, and will exceed net federal spending on Medicare by next fiscal year. To say that the growing interest costs created by our skyrocketing debt pose a threat to fiscal responsibility would put it mildly.
Unsustainable Trends
It has become impolitic among politicians of both parties to say so, but there is little doubt where the source of the unsustainable spending lies:
In CBO’s current projections, federal outlays rise from $6.9 trillion in 2024 to $10.3 trillion in 2034, an average annual increase of 4.1 percent. Outlays for Social Security and Medicare account for more than half of that $3.4 trillion increase. By 2034, outlays for Social Security, the major health care programs [i.e., Medicare, Medicaid, and Obamacare], and interest account for 68 percent of projected spending, 10 percentage points more than the share projected for 2024.
It matters not what Joe Biden or Donald Trump claim. The idea that Washington can balance the budget, or even get the budget into something resembling a responsible posture, without touching two-thirds of the budget — i.e., Social Security, Medicare, and Medicaid — defies any type of logic.
These stark fiscal facts come as defense spending has slid to a postwar low, even as threats from China, Iran, and North Korea among others loom large on the horizon. CBO also notes that discretionary spending — which covers things like defense, K-12 education spending, the National Parks, NASA, and most things people associate with the federal government — is projected to fall to its lowest recorded level as a share of the economy since records began in 1962. In other words, while there is always fat and waste to cut in the federal government, doing so won’t solve the major fiscal problems our nation faces.
To put it bluntly, Social Security, Medicare, and Medicaid are cannibalizing the entire federal budget. Unless and until Congress stops the “Mediscare” rhetoric and gets serious about reforming these programs, our financial situation will continue to get worse. And Lord help the next generation if we don’t wake up and come to our senses sooner rather than later.
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