Time's a-wastin'.
That's the key takeaway from the latest budget outlook from the Congressional Budget Office. A plateau in spending and modest growth in revenues over the past few years have allowed federal budget deficits to fall back toward their historical level of 2.7 percent of GDP. But they've also allowed Congress, the president and the public to get complacent about federal finances. And as we can see from the report the CBO issued Monday, we won't have the luxury of complacency much longer.
Here's the CBO's picture for the next 10 years in a historical context:
So, the very best years of the current period will be merely average. And within a decade, deficits will be back to 4 percent of GDP -- one and a half times the average -- and growing. We can expect them to keep growing, given the CBO's explanation of what will be driving the increased borrowing:
"In CBO's projections, outlays rise from a little more than 20 percent of GDP this year (which is about what federal spending has averaged over the past 50 years) to a little more than 22 percent in 2025 .... Four key factors underlie that increase:
- "The retirement of the baby-boom generation,
- "The expansion of federal subsidies for health insurance,
- "Increasing health care costs per beneficiary, and
- "Rising interest rates on federal debt."
So, the rising spending will be driven by Social Security, Medicare, Medicaid, Obamacare and debt payments. These increases are expected to overshadow declines in spending for everything else, including the military and discretionary programs. Those declines are what President Obama and the GOP House were able to agree on previously. But as many of us warned at the time, that was nibbling around the edges of the problem -- which is being driven, and will continue to be driven, by entitlement spending.
And this is a best-case scenario. The CBO assumes revenues will continue to rise to almost 1 full percentage point above their 50-year average and stay there, even though we have never sustained such a bump for more than a few years. The forecast also does not take into account any future recessions, which history tells us will be coming well before this 10-year window ends in 2025. Keep in mind federal surpluses were forecast to be just around the corner as late at 2007, before the Great Recession hit. With domestic growth expected to be only average in the next few years (2.5-3 percent, according to the CBO) and markets and economies overseas looking shaky, Congress shouldn't be budgeting based on such a rosy outlook -- especially when that rosy outlook still shows rising deficits on the horizon.
That brings us back to the present. We have a lame-duck president who in the past has at least talked in the direction of modest entitlement reforms, and a GOP Congress that needs to show its base and the country it can deliver on its promises. This would seem to be the ideal time to take some steps toward avoiding that future deficit growth. Not least since reducing our borrowing as soon as possible not only avoids future borrowing but future interest payments as well.
The president's defiant tone since the midterms doesn't offer much optimism on this front. But if he truly wants to do something to help a Democrat succeed him, why not grab the proverbial third rail so she doesn't have to?
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