When Barack Obama took office in 2009 and racked up trillion-dollar deficits, it shocked the nation and spawned the Tea Party movement to push reductions in spending. Thanks to passage of the Budget Control Act under a GOP Congress, deficits declined to roughly $400-$600 billion during Obama's second term in office.
Fast-forward to the new decade, and despite high revenue and record low unemployment, annual deficits will forever remain above $1 trillion, barring major structural reforms to government, according to the latest budget and economic outlook from the Congressional Budget Office (CBO).
According to the 2020 budget outlook released on Tuesday, the deficit for this year is projected to reach $1.015 trillion. There will be no turning back from there, as deficits are slated to grow every year for the remainder of the 10-year budget window, topping $12.4 trillion of cumulative new deficits by the end of the decade.
Perhaps the most shocking element of this report is the fact that unemployment is so low, yet deficits are as bad as they were during the worst times of the Great Recession.
"Not since World War II has the country seen deficits during times of low unemployment that are as large as those that we project — nor, in the past century, has it experienced large deficits for as long as we project," said CBO Director Phillip L. Swagel in a news conference on Tuesday.
It's no coincidence that since the debt has exploded over the past generation, we've never achieved solid economic growth, despite record low unemployment. Previously, during years in the 1960s, mid-1980s, and late 1990s, periods of low unemployment coincided with years of 4-5% GDP growth. Yet despite the lowest unemployment rate in half a century, the economy is growing right around 2%.
After missing 3% growth in 2018 by a hair, we have failed to achieve 3% annual growth since 2005 and 4% since 2000. The CBO projects gross domestic product will grow by just 2.2 percent this year and at an average pace of 1.7 percent over the next decade. At the same time, unemployment hasn't been this low since the late 1960s, when there were years of over 6% growth.
As the CBO notes, with increasing federal deficits, "crowding out of private investment occurs gradually, as interest rates and the funds available for private investment adjust in response to increased federal deficits." Overall, the CBO projects that the accelerating level of debt, which is slated to more than double as a share of GDP over the next 30 years, will "dampen economic output over time."
It also warns that "rising interest costs associated with that debt would increase interest payments to foreign debt holders and thus reduce the income of U.S. households by increasing amounts."
The time for growing our way out of the debt bomb seems to have long passed, as the debt itself is acting as a wet blanket on economic growth and efficient investments, even during a period of job creation.
What's the No. 1 driver of the debt? While Social Security is the single biggest expenditure for an individual program, federal spending on all health care programs together tops even the price tag of America's iconic retirement program. The CBO projects spending on health care, which largely funds third-party and fourth-party vendors who interfere between the patient and the doctor, will cost $1.3 trillion this year. By the end of the decade, the Medicare program alone is slated to pass Social Security as the most expensive cost to the federal government.
Federal spending on health care (not including state expenditures) is projected to be $19.2 trillion over the next 10 years, dwarfing the cost of Social Security and the military. By 2050, health care spending will be about 25% greater than the insolvent and crushing cost of Social Security. As such, health care in itself is the largest driver of the other great crisis, the mushrooming cost of the interest on the debt itself. Health care spending will be greater than all the revenue from payroll taxes and corporate income taxes combined and almost as large as individual income tax revenue.
However, as the CBO noted, the stagnation and disruption from our debt only "occurs gradually." CBO Director Swagel noted that because other countries are doing even worse than we are financially, the U.S. is still an attractive place to invest, thereby allowing government to continue servicing debt on the cheap, which is forestalling the doomsday moment.
"We're not saying that there's an imminent, urgent problem," he told reporters. "The challenge is over time."
For lawmakers in both parties, it is that grace of time that will incentivize them to continue doing nothing with no regard for the future. They subscribe to the Louis XV mentality of "after me, the deluge."