John Faso: U.S. Deficit Follies Continue
As the House of Representatives and the Trump Administration spar over impeachment, the public can be excused for forgetting about our national debt and annual deficits. Forgetting it doesn’t change the fact that the nation’s finances are a mess.
Congress missed the October 1 deadline for passing appropriations bills. The federal government is operating on a continuing funding resolution which expires just prior to Thanksgiving on November 21.
On the current trajectory, deficits are expected to grow each year over the next decade to over $1.5 trillion. Currently, the annual deficit is approximately 80% of the GDP. By 2033, budget experts project that the deficit will be over 100% of GDP. Just one year later, in 2034, the Social Security system is projected to pay only 77% of promised benefits, which would be a social and political calamity for the nation.
Meanwhile, Democratic presidential candidates are making grand promises for much higher federal spending. Bernie Sanders promises “Medicare for All”, costing an estimated $32 trillion over 10 years. Since current federal revenues – all of them – are just over $3 trillion each year, Sen. Sanders is in essence promising to double all federal taxes to pay for this promise.
Not to be outdone, Elizabeth Warren proposed $800 billion on new spending for K-12 education, a function which heretofore has been largely within the province of state and local government. She also wants to cancel most student loan debt, costing another $630 billion; and establish a $1 trillion plan for universal child-care. And then there is the multi-trillion “Green New Deal”.
Where will this the money come from? Repealing the 2017 tax cuts wouldn’t come close to paying for this new spending and would harm economic growth. Some say the deficits don’t matter; after all, we’re only borrowing the money from ourselves, they contend. Conveniently, they ignore the fact that much of our debt is financed by foreign investors, seeking a safe haven for their money. That safe haven won’t appear too promising when a credit crunch occurs and interest rates rise, forcing the government’s annual debt service liability – now hovering near $400 billion – to double.
Sen. Warren, the candidate who has a plan for just about everything, has been purposely vague about how she would pay for her “Medicare for All” scheme. At least Bernie Sanders has admitted that taxes for everyone will rise, but he argues that the net cost for taxes and health care will go down. That sentiment is, as Dr. Johnson once said in another context, the “triumph of hope over experience”.
Warren says she will rely on a new “wealth tax” to pay for many of her spending plans. Yet, most legal experts say a wealth tax is unconstitutional and nations which have attempted to tax wealth have largely abandoned these approaches as too complicated and counterproductive to implement.
Indeed, Sen. Warren is reckless to promise trillions of new spending premised on a wealth tax which will never be enacted, much less withstand legal challenge.
The “Medicare for All” plans ignore some salient facts. First, the current Medicare program is on thin ice financially. Given the demographic bubble represented by baby boomer retirements and greater life expectancy, the finances of the existing program are in trouble. The non-partisan Medicare Trustees have documented this fact.
Here’s the bottom line: fully 72% of all federal spending is now consumed by Social Security, Medicare, Medicaid and interest on the national debt. Defense and all other federal spending consumes the other 28%. And guess which bucket of spending is growing faster? If you guessed the 72% portion you’d be correct.
Americans deserve to be told the truth about our national finances, yet both parties are largely silent. Our children and grandchildren will one day discover the economic implications of the debt we are expecting them to pay. Hopefully, at that time it won’t be too late to get our fiscal house in order.
Former Representative John Faso of Kinderhook represented New York's 19th House district in the 115th Congress.
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