Is Congress capable of addressing our debt crisis?
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One of the few things Democrats and Republicans both agree on is that the trajectory of the nation’s debt is unsustainable. It makes little difference which party is in control, the debt burden keeps increasing.
The Congressional Budget Office estimates annual U.S. budget deficits could average around $2 trillion a year during the next decade, adding $25.4 trillion to our current debt of $32.6 trillion. Debt compared to GDP (the nation’s total economic output) is a major indicator of fiscal health; it was 97% at the end of Fiscal Year (FY) 2022.
Generally, experts view with alarm a country’s debt that exceeds 100% of GDP. Uncontrollable debt leads to all sort of economic problems. The U.S. economy is large enough and the dollar strong enough to allow us some time to address the problem. But, like climate change, this does not mean we have forever.
Congress has for decades approved popular programs without raising new revenue to pay for them. Voters like services, but not taxes. Unfunded wars in Afghanistan and Iraq, stimulating the economy after two economic shocks (the 2008 banking crisis and COVID), and reducing taxes by $2 trillion a year (the Trump tax cuts), have sent U.S. debt toward 100% of GDP and beyond.
Congress can begin solving the problem by a mix of reduced spending and increased revenue to lower the annual budget deficit, which increases the national debt.
The U.S. budget is divided as follows: More than two-thirds is required spending not subject to annual Congressional action, mandatory spending. This is mainly Social Security, Medicare, Medicaid, other required spending and interest on the national debt. Slightly less than one-third of the budget is discretionary spending Congress appropriates annually; half of this is defense spending and the other half is everything else government does.
First, we cannot solve our budget deficits by gutting discretionary spending. “Food and Agriculture” programs, which include food stamps and farm subsidies, make up only 1% of the budget. While Congress should look at subsidies and other discretionary spending, including defense, drastic cuts in food stamps and similar programs are not the answer.
Mandatory spending programs are where the money is. These are popular and hard to cut. Both Medicare and Social Security are running out of money, in 2030 and 2033 respectively. So, these and other entitlement programs, like military and civilian retirement, must be reformed and taxes increased to solve the debt crisis, plain and simple.
In the near term there are things Congress can do. Ignore political trash talk and fund the IRS properly. The CBO estimated that increasing IRS funding could raise $200 billion in legitimately owed taxes during the next decade. Eliminate tax loopholes, like the carried interest provision that both parties have supported eliminating in the past. Allow the Trump tax cuts for the wealthy to expire in 2025. These and similar steps will reduce the deficit.
But the largest deficit reducer is a strong economy that yields more revenue. At the moment, the U.S. is enjoying a better-than-expected economic recovery and inflation is going down, even if many citizens have yet to see the benefits.
Congress returns this month to pass the budget for the fiscal year beginning October 1. There are threats by extremist House Republicans to shut down the government if they do not achieve further budget cuts than those already agreed to with President Biden.
This would cause needless hardship for many Americans, require increased government support payments, damage the economic recovery, contribute to reduced tax revenue, raise the specter of another debt downgrade, and brand Republicans as unreliable negotiators.
Let us hope that Congress acts responsibly by resisting ideological extremism and passing a budget that does no harm to the economy, consistent with fiscal sustainability going forward. Ultimately, Congress must face up to the need to reform Social Security and Medicare, as well as other unsustainable mandatory programs, and find a way to enact equitable budget reform that results in adequate revenue to fund the budget.
Now is a good time to start.
David Darby is a former federal budget official, Montana state budget director, and U.S. Treasury Department senior budget policy advisor to numerous foreign finance ministries. He is retired and lives in Billings.
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