The sun rises over the Capitol in Washington. (Andrew Harrer / Bloomberg)
The federal government is on track to have a $ 1 trillion deficit in 2020 – and continues to have yawning deficits for the years ahead, predicted the Congress's bipartisan budget office on Monday.
It's a report that should worry Americans, especially younger ones.
At a fundamental level, this means that the United States government spends a lot more money than it spends. This is not a new problem. The US has a deficit every year since 2002, but the situation will soon be really ugly. In good economic times, the country has never reached such a deficit. If expenditure continues at this rate (and there are signs), President Trump and his successors will have less flexibility to revive the economy during a downturn or even a crisis.
"This is unprecedented," said Justin Bogie, senior political analyst for tax issues at the conservative Heritage Foundation.
It does not mean that the economy or the stock market will crash tomorrow.The US is able to face such high deficits As the US Treasury Department turns around and sells US debt to investors around the world, many people now want to buy US Treasury bonds, even though America already has $ 15 trillion in public-sector debt, but the problem is, nobody knows when people say enough is enough and stops buying US debt – or demands much higher returns.
Even if the nightmare scenario does not materialize, deficits weigh on the economy and investors choose to buy public debt Instead of making private investments that create jobs or raise wages, economists warn.
Obama has no $ 1 trillion had fizit? Some may recall that the US government suffered trillions of dollars in losses each year from 2009 to 2012, but that was during a terrible economic period when America (and much of the world) was trying to get out the global financial position to retreat crisis and subsequent recession. The government spent a lot of money to revive the economy.
Now growth is healthy, unemployment is extremely low (4.1 percent) and confidence is strong. In times like these, the US government has almost always reduced the budget deficit – or even a surplus, as from 1998 to 2001, the end of the dot-com boom. But instead of improving the budgetary position of the government, Congress is going in the opposite direction, adding an alarming signal.
"We are rolling up the national credit card if everything goes economically," said Maya MacGuineas, president of the Responsible Federal Budget Committee. "It shows that Congress has lost every will to make tough decisions to fix the record debt we already have."
What it means for you. To emphasize the size of the debt, CBO notes that by the year 2028, public debt will be at its highest level (as a percentage of the US economy) since World War II.
A Day Billing is likely to occur at a point where the US needs to raise taxes or cut benefits and programs many people have relied on – or a combination of the two.
Many Americans under 50 are likely to experience pain This and the under-35s will probably be particularly hard-pressed to pay more to the government, while coming back far less than their parents and grandparents. Expenditure on social security, roads, research and schools could fall.
How worried should I be? The US government has not tested the level of debt, which is the public debt of the entire US economy, in modern times. So many left and right economists have warned Congress and the White House not to act now before things get so bad.
"The greater the debt, the greater the chances of a fiscal crisis," said CBO director Keith Hall said Monday. The longer you wait, the more draconian the measures have to be to fix the problem, which is the biggest warning. "
One of the places where the US government in The rule that first gives way is so-called "discretionary spending," ie spending on education, housing for the poor, veteran benefits, scientific research, roads and bridges, and other infrastructure, etc. The problem is that CBO predicts that in a decade the American Interest payments alone will exceed the discretionary expenditure on all non-military goods. This means that it will be increasingly difficult to find money in the budget to cut back because the government can not stop paying interest (unless it wants a default, which would probably have even worse economic consequences).
Why do we have? this problem? The US, like many advanced economies, has an aging population (the proportion of people over 65 is twice as high as half a century ago). That means spending more on senior programs like Social Security, Medicare and Medicaid. It also means fewer workers with jobs paying taxes to support all older Americans. This is a major factor in the deficits, but Trump said he would not handle Social Security or Medicare on the election campaign.
The other major government expenditures are defense, part of maintaining their global military supremacy. The Trump government has been pushing for massive increases in military spending and trying to rebuild them after modest declines at the end of the Obama administration.
While Trump was campaigning for debt reduction, he and the GOP-led Congress said the deficit was worse last year, according to CBO calculations. The massive tax cut, especially for corporations, will cut government revenues by $ 1.3 trillion over the next decade, according to the CBO. After taking into account rising interest rates, the tax bill will cost the country $ 1.9 trillion during that period.
CBO added that what Trump and Congress have been doing since June will "make an estimated $ 2.7 trillion in deficits" in the next decade, "wrote CBO in its report.
What can be done about it? Various bipartisan coalitions over the years, notably Simpson-Bowles in 2010, provided a way to tackle the debts that were attractive to many centrists:
Let most Americans wait longer for them to pick up Social Security Increase taxes a little (this could be anything from raising Social Security or Medicare tax on carbon taxes or a special millionaire tax) and looking for ways to cut Medicare and Medicaid spending by doing harder deals with providers Complete and / or some restrict types of treatments.
These are not popular changes, but no one gets into one Economic crisis because the US government has been giving away so much for so long. Or in the face of a situation where millennials and younger generations have to pay off the debts of their parents and grandparents.
The social security program for older Americans is expected to be phased out in 13 years, according to the latest CBO estimates. It is expected that the Highway Trust Fund will go bankrupt by 2022, and the disability insurance program would have run out by 2025, says CBO, unless Congress takes action.
Some conservatives have called for more cuts in social programs. Progressives tend to see big cuts in military spending.
The Congress and the Obama administration agreed in 2013 on the so-called "budget sequestration". The idea was to introduce binding ceilings for social and defense spending, unless both parties came together to form a long-term budget agreement. The two sides have never reached a deal, and so the caps were introduced, which pushed down the deficits in the last years of the Obama era.
Balanced budget change? Another solution that has been launched is a balanced budget change. Congressional Republicans are planning to vote this week, though almost nobody expects it to pass. It is probably a symbolic vote for some lawmakers trying to show that they are doing something to curb their debts.
Many states have these, and there are calls to see if it's possible at the federal level to do so. It would require a change to the US Constitution, a difficult process. It would also eliminate some aid to the economy in times of crisis. During and after the Great Recession, many states have had to cut spending heavily, reduce money for schools and, in some cases, lay off workers while so many Americans have already taken care of a job. This situation can aggravate downturns.
While many agree that something needs to be done to bring America's budget to healthier levels, even the so-called "Budget Hawks" are voting this week to shake their heads.
"Anyone who supports the balanced budget should be asked to present a balanced budget," said MacGuineas. "Congress has certainly made terrible political decisions in recent months, starting with irresponsible tax cuts."
Republicans consider a balanced budget supplement
What Trump has suggested to cut in his budget in 2019  Who has lost more in a US-China trade war?