Are trillion-dollar deficits the new norm?
Trillion-dollar deficits are coming back faster than originally projected. Though it’s fair to complain about the impact of the recently enacted tax cuts on our red ink, the ultimate culprits for our upcoming debt crisis are lawmakers who continually refuse to reform entitlement programs.
Consider the numbers. According to the Congressional Budget Office’s newly released report titled “The Budget and Economic Outlook: 2018 to 2028,” the U.S. deficit will reach $1 trillion by next year. That’s three years sooner than projected last year. This year’s deficit projection was also revised, increased to $804 billion, or about $300 billion more than projected last year. By 2028, the deficit will be north of $1.5 trillion. Ouch.
These amounts are quite large by historical standards. Between 2022 and 2025, deficits as a share of gross domestic product will be 5.1 percent. As CBO notes, “that percentage has been exceeded in only five years since 1946.” For perspective, the authors add, “four of those years followed the deep 2007-2009 recession.”
That’s why these statistics should be utterly shocking; we’re not in a recession. In stark contrast, the CBO projects very healthy growth numbers. Yet federal spending is projected to exceed 23 percent of GDP by 2028. It has historically fluctuated around 20 percent of GDP.
Revenues will fall slightly as a share of GDP following the 2017 tax cuts, before recovering to their historical average by 2025 and exceeding historical averages thereafter. In other words, we have a spending problem first and foremost.
Deficits are now the norm, and the level of federal debt held by the public will continue to mount as the interest on that debt consumes ever-larger amounts of the federal budget. Based on current trends, the debt held by the public is set to reach $15.7 trillion by the end of this year and continue rising to $28.7 trillion by 2028. Also far ahead of schedule, our debt-to-GDP ratio is expected to reach 100 percent by 2028. This level of projected debt is the highest since World War II.