The Congressional Budget Office (CBO) just announced that the federal budget ran in the red by a whopping $1.8 trillion during fiscal year 2024. Even for Washington, that is a big number. Meanwhile, both presidential candidates are out buying votes with more giveaways that will only swell the tide of red ink. Outstanding amounts of federal debt already exceed the economy’s annual output of goods and services. Worse, the nation’s fiscal structure all but guarantees that relative debt burdens will continue to grow regardless of who wins in November. 

Worse still, few, if any, in Washington seem bothered by the situation. When Washington does turn to budget matters, it always seems to seek distractions rather than venture into the politically turbulent waters that surround the budget’s underlying problem: the uncontrollable growth of entitlement spending. Since this sad pattern seems set to continue, the nation faces less than upbeat economic and financial prospects.

Some years ago, when it was still politically fashionable to worry over budget deficits and an accumulation of debt, the political establishment distracted itself from the underlying problem with talk of “tipping points.” Identifying that moment when the weight of government debt becomes unsupportable allowed politicians and not a few economists to issue grave warnings but few solutions. The fact is that no such “tipping point” exists. Japan, for instance, carries a government debt burden of some 260 percent of that country’s gross domestic product (GDP). Though Japan’s economy is hardly a juggernaut of economic growth, it runs smoothly enough and produces high levels of prosperity. In contrast, the United States in the 1970s suffered terrible inflationary pressures, financial dislocation, and substandard economic performance even though its outstanding government debt averaged only 33 percent of the country’s GDP.

Today, the distractions from underlying budget issues revolve not surprisingly around the presidential campaign. The work of the University of Pennsylvania’s Penn-Wharton budget model is illustrative. It calculated that compared with a continuation of current policy, the Harris-Walz program would enlarge federal deficits cumulatively by some $1.2 trillion over the next ten years, and Trump policies will enlarge deficits by some $5.8 trillion cumulatively over the same period. These projections captured some media attention and even made a brief appearance in the second presidential debate. No one, however, put them in their needed perspective, allowing the figures to serve as a distraction rather than a basis for analysis. 

The fact is that the current law, against which the model assesses policy, is scheduled in 2025 to erase the 2017 tax reform. That move will impose a 20 percent tax increase on individuals and corporations. Since Trump has promised to make the 2017 reforms permanent, the Penn-Wharton model treats his policies as a 20 percent tax cut. However, this is not a cut from the tax code as it presently stands. This one consideration accounts for more than 80 percent of the calculated cumulative deficit the model assigns to him. To point this out would require people to come down one side or the other about this prospect. Surely, it is easier (and safer) to just talk gravely about the figures.

None of this is to defend Trump. Even abstracting from this matter, his promises would still add to the river of red ink. However, this should reveal how shallow the current conversation on budget issues remains. Meanwhile, there is no sign that anyone in Washington is the least bit interested in venturing into the deep political waters of the underlying budget and debt problem: the nearly complete takeover of the budget by entitlements, especially Social Security, Medicare, disability payments, subsidies under the affordable care act, and assorted other programs.

Here, the statistics are quite straightforward. Entitlements have grown from 45.3 percent of the budget (and 9.5 of the nation’s GDP) in 1990, for instance, to over 60 percent of the budget in 2024 (and some 15.4 of GDP). This growth has occurred automatically without a congressional vote. The budget office captures the automatic nature of this spending by referring to entitlements as “mandatory programs.” During these last thirty years or so, relative declines in defense spending have blunted the overall budgetary effect of relentless entitlement increases. Defense spending has dropped from 23.9 percent of the budget (and 5.0 percent of GDP) in 1990 to 12.9 percent of the budget (and 3.2 of GDP) in the most recent fiscal year. The cushion afforded by relative defense cuts has enabled the political gloss over any consideration of the fundamental budget problem. 

But in today’s dangerous world, such defense cuts are unlikely in the future. Moreover, the retirement of the huge baby-boomer generation will only add to entitlement spending pressures, especially in Social Security and Medicare. The accumulation of debt will also relentlessly enlarge the need for more money to pay the interest due on it. Quite aside from the usual election year giveaways by either party, the deficits and debt will grow and do so relentlessly, and so accordingly will the debt load.

If there is no “tipping point,” after which things spiral out of control, this relentless and excessive growth in debt will nonetheless have ill effects on American finance and the economy, some of which are already evident. Fiscal flexibility will suffer, whether the need stems from domestic or foreign matters. Washington’s ever-larger call on the nation’s financial resources will absorb funds that would be better used by businesses and individuals to improve the economy’s efficiency and productive capacities. The pace of growth will, as a consequence, suffer an ongoing drag, and an inflationary bias will chronically trouble the economic environment.     

Despite these dim economic prospects, the political class seems unlikely to take remedial steps any time soon. Indeed, the presidential election campaign shows that either party is more likely to enlarge rather than control future dollar flows into entitlement programs. Indeed, if, as is likely, the economy becomes more constrained, politicians will face more demands for entitlement spending, and if history is any guide, they will yield to those demands. It is a grim prospect indeed.

About the Author 

Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New York-based communications firm. His latest books are Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live and Bite-Sized Investing.

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