On Monday, The Wall Street Journal reported on a development students of American governance have known about for years, but politicians have studiously avoided doing anything about: the United States’ debt will cost us more in the near future than our own national defense. Thanks to the weakness of the global economy in the aftermath of the 2007-2008 financial crisis, tremendous appetite for American debt shielded us from the fallout from our $20 trillion debt – but that could soon be ending. When it does, there will be fiscal hell to pay.
Kate Davidson and Daniel Kruger report:
The Congressional Budget Office estimates interest spending will rise to $915 billion by 2028, or 13% of all outlays and 3.1% of gross domestic product. Along that path, the government is expected to pass the following milestones: It will spend more on interest than it spends on Medicaid in 2020; more in 2023 than it spends on national defense; and more in 2025 than it spends on all nondefense discretionary programs combined, from funding for national parks to scientific research, to health care and education, to the court system and infrastructure, according to the CBO.
In the early 1990s, President George H.W. Bush agreed to tax hikes that killed his political career thanks to the burdens of the national debt. President Trump is highly unlikely to do the same – and neither are Congressional Republicans, whose only major legislative achievement is the tax cuts passed last year.
Moreover, Democrats have no interest whatsoever in paying down the national debt. In fact, it’s exactly the kind of lever they’re looking for to raise taxes should they gain office in the near future. Instead of blaming the actual culprit of our national debt – out of control entitlement spending – Democrats have spent the last decade falsely blaming the wars in Iraq and Afghanistan and tax cuts. They’re currently proposing an exponential expansion of our spending on entitlements with programs like “Medicare for All” and free college tuition, which won’t be paid for by anything other than a tremendous middle class tax hike. Democrats want Nordic social democracy; they’re going to have to push Nordic tax rates in order to achieve it.
Furthermore, as the Journal reports:
Debt as a share of gross domestic product is projected to climb over the next decade, from 78% at the end of this year—the highest it has been since the end of World War II—to 96.2% in 2028, according to CBO projections.
By way of contrast, Spain, a country with serious fiscal problems, stood at debt-to-GDP of 99.6 percent last year.
Now, some commentators have been sanguine about the possibility of such debt. They say that a little fiscal handiwork will do the trick – simply cut the budget a little, revert to strong economic growth, and the rest will be fine. But that’s ignoring the structural problem of our debt, which is far more ruinous than it was in 1991. We can only stave off serious restructuring for so long.
But there’s no political benefit to staving off the debt for either side. Republicans lose ground when they talk about restructuring entitlements; Democrats want to expand entitlements. The American public is simply unready to talk about doing what we must in order to ensure America’s continued economic growth and strength, particularly at a time when our population is rapidly aging. That’s why Speaker of the House Paul Ryan (R-WI) will leave Congress with his chief political ambition, entitlement reform, unfulfilled.
What will the consequences be? The continued Europeanization of American politics, as taxes and spending inevitably rise in tandem. The only difference between the parties will be Republican calls for austerity measures at the margins, and Democratic calls for massively higher taxes and higher spending.
We’ve been playing a pyramid game. In the next decade, that pyramid is going to cave in on us.