Debt and Deficits

CBO's Latest Budget Report Is a Reminder That Debt and Deficits Haven't Gone Away

Trillion dollar deficits are on their way back.

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You haven't heard the words debt or deficit very often on the campaign trail recently, and there's a reason for that: After the trillion-dollar deficits of President Obama's first term, the nation's annual fiscal has fallen down to less immediately worrying levels. Last year's deficit was just $439 billion—still historically high in unadjusted dollar terms—but also equivalent to about 2.5 percent of GDP (gross domestic product), which many economists think is basically manageable. At least, that is, if you can reliably hold it at that level.

And that's where the problem begins: As a report released this afternoon by the Congressional Budget Office confirms, the annual deficit is creeping back up this year—to $544 billion. That's worrying not only because it's higher than last year, but because, for the first time since 2009 it's rising as a share of the economy, to about 2.9 percent of GDP. Not only that, but the deficit is set to rise every year for the next decade, pushing us back over the trillion-dollar mark by 2022. We're in a brief lull right now, but that doesn't mean the issue is solved. 

Via the Committee for a Responsible Federal Budget, here's what that looks like: 

CRFB

And during that time, the nation's already significant debt—the total amount that the nation owes—will continue to rise. In 2016, total debt held by the public will equal about 76 percent of GDP, which, as CBO notes, is "two points than it was last year and higher than it has been since the years immediately following World War II." This is a historic fiscal gamble.

This year's deficit tally was higher than expected for two essential reasons. In last year's omnibus, Congress passed a bundle of tax extenders without real offsets to pay for them, leading to lower than expected revenue, and, on the other hand, the growing costs of entitlement programs like Social Security and Medicare continue to be a burden. If you reduce tax revenues as spending continues to rise, the deficit will grow.

And a growing deficit, every year, is what we're headed for, with growing debt in tow. Between now and 2016, total annual deficits are expected to total about $9.6 trillion, all added onto the debt we're already carrying. And on our present course, that will only continue: In thirty years, the CBO estimates, debt held by the public will have doubled as a percentage of GDP, to about 155 percent.

This has always been the biggest problem with debt and deficits—not what's likely to happen this year or next, but the risks it holds further down the road. A growing, historically large debt means that the federal government is constrained a variety of ways: Because it's spending so much on interest, that means it can't spend the money on other programs (or return it to taxpayers in the form of tax cuts). It also puts the U.S. at risk of economic shock if interest rates rise sharply; the more debt a nation carries, the harder it is to weather a sharp hike in rates. That, in turn, makes a fiscal crisis more at least somewhat more likely—something that's especially worrying given that, thanks to the burdens imposed by high debt levels, policymakers will have fewer options if a crisis ever hits.

So while it's in some ways understandable that politicians have focused less attention on debt and deficits recently, it's also worrisome, for it shows how poor our political system is at managing predictable but long-term problems like this: The longer we wait to take action, the bigger the necessary adjustments will be, and the more difficult it will become, politically, to do so. 

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  1. Between now and 2016, total annual deficits are expected to total about $9.6 trillion,

    1. Oh shit!

    2. The deficits are coming from inside this year!

  2. We owe the money to people who don’t matter.

  3. In last year’s omnibus, Congress passed a bundle of tax extenders without real offsets to pay for them…

    “Paying” for tax breaks, eh?

    1. Tax breaks aren’t free, Fist.

      1. They are, technically, a reduction in expenses (to the taxpayer).

        Only in gov-land does a reduction in revenue have to be “paid for” by reductions in expenses. Seriously, I have sat in a lot (A LOT) of finance meetings, and whenever revenue falls short, we talk about cutting expenses, but nobody has ever said “we have to pay for these revenue losses”.

        1. And you work in healthcare, so I bet there are a LOT of meetings about revenue losses.

        2. I wonder what would if you were to say you needed to pay for revenue losses?

  4. Dammit, we need a Republican majority congress, and we need it now!

    1. If only the Republicans had caved more then the budget situation would be better/Welch and Suderman

  5. Why does only ‘debt held by the public’ count as debt? Will the other $4.3 trillion ‘not held by the public’ not have to be repaid?

    It’s already well over 100% of GDP and climbing. Anyone that tells you otherwise is selling you something.

    1. Technically there is no debt because the government can just print 20 trillion bucks and pay it off

      /feelthebern

  6. Nobody’s arguing they’ve gone away. We’re only arguing whether or not they matter.

  7. This year’s deficit tally was higher than expected

    So-called “experts” fuck up yet again.

  8. So Matt Welch was wrong? I have a sad.

    https://reason.com/archives/200…..as-numbers

    You should never take a politician at his word. But you should listen to what he campaigns on day after day, especially if he goes on to win big. Amid Obama’s host of illiberal campaign ideas?”fair” trade, centralized energy policy, New Deal?style infrastructure projects, more federal dollars into the sinkhole of public schools?the Democratic candidate also spiced his daily stump speech with a firm-sounding nod to fiscal responsibility. Coupled with a sorry budget situation that’s certain to get worse as a result of massive income tax losses from Wall Street, this commitment to fiscal sobriety may strangle many of Obama’s more expensive fantasies in the crib and crack open the door for ending or privatizing any number of inefficient federal programs.

    1. Yes, Matt was wrong but I think he’d admit it.

    2. Why the boner against Matt Welch? Show where he said anything false. He reported what Obama promised, then explicitly said

      this commitment to fiscal sobriety may strangle many of Obama’s more expensive fantasies in the crib and crack open the door for ending or privatizing any number of inefficient federal programs.

      Note the “may”, and note how in general it is still is true even if optimistic. Something’s got to give sooner or later, and it will be spending, because revenue can not increase much further. Even if we take the Greece route, or Weimar Germany, spending cannot increase much further in real terms.

      1. I think there are commenters here who are really angry at the Reason staff who swung for Obama because for a brief moment, he appeared to be the lesser of two weevils.

        1. I’ve noticed a lot of them, who seem to forget that candidate Obama promised almost all the right things, even allowing for the usual political lying. I don’t remember any candidate who flipped so thoroughly after election.

          I have it easy come election day. My state reliably votes very one-sided, so I have the luxury of voting for anybody I want. If 2008 had been close, I might well have voted for Obama as the lesser weevil. I wonder how many of these Reason-haters actually did such a thing, and now blame Reason for their misplaced trust.

          1. I don’t remember any candidate who flipped so thoroughly after election.

            http://en.wikipedia.org/wiki/U…..tion,_1932


            In this history-making[clarification needed] speech, Roosevelt promised to “abolish useless offices” and “eliminate unnecessary functions of Government”, stating that “Government ? Federal and State and local ? costs too much”

            “I accuse the present Administration of being the greatest spending Administration in peacetime in all our history.”[10] Garner accused Hoover of “leading the country down the path of socialism.”

            http://en.wikipedia.org/wiki/U…..tion,_1940
            Roosevelt, in a pledge that he would later regret, promised that he would “not send American boys into any foreign wars.”

            You Were saying?

            1. FDR, like Obama, inherited an awful recession from that Republican Hoover. He had no choice.

            2. FDR flipped pretty badly, but I think Obama has him beat for the shear breadth of everything he promised. Maybe that’s unfair, since the New Deal Society hadn’t grown so bloated back then, but that’s how records are broken.

            3. “Read my lips.”

              1. Not even close in breadth or depth to Obama.

          2. Oh and Woodrow Wilson “kept us out of the war” and LBJ would not send any troops to Vietnam.

          3. I don’t particularly begrudge Mr. Welch, who seems to be fairly fair and considered (if sometimes wrong) in his assessments.

            That said, if you thought candidate Obama was promising almost all the right things, you weren’t listening very closely. Really, this is a guy who was talking about creating two classes of corporations, with corporations that favored government policy being rewarded with privilege over corporations that didn’t. He was talking the public option in his health care proposals. This is a guy who famously told “Joe the Plumber” about how he thought we needed to “spread the wealth around”.

            There was nothing about candidate Obama that should have led anyone to think he was anything other than a man of the left.

            1. Candidate Obama also railed against TARP, against the Gulf wars, against deficits and the national debt, and a zillion other things. You have a pretty selective memory.

              1. railed against TARP

                Which he supported.

                against the Gulf wars

                While supporting the one in Afghanistan

                deficits and the national debt

                While calling for more spending…

                1. I’ll add that, even the Welch quote Winston complains about above acknowledges Mr. Obama’s intention to expand the size and scope of government. The only thing he calls into question is his ability to do so. That simply doesn’t square with the notion that Mr. Obama ran on any platform other than expanding the size and scope of government.

              2. As others have pointed out, Obama voted for TARP. And his complaint wasn’t TARP giving freebies. It was TARP giving freebies to “the wrong people”. His complaint against the deficit was that we weren’t taxing enough. That’s most certainly not “saying the right things”. At least if you’re a libertarian.

                It’s not selective memory. I very much recall thinking when Obama was a candidate “Christ, this guy is really pushing for a lot of government control of the economy and a lot of wealth redistribution.”. Maybe you didn’t want to believe he really meant it. Maybe you were to young to have been paying attention. Or maybe four years from now, God forbid, you’re going to be telling us all “Gee, that Sanders fella sure did a turnaround. Before he got elected, he was saying all the right things.”

      2. Why the boner against Matt Welch?

        Cuz he keeps saying that the libertarian moment is upon us and made a spectacularly wrong prediction?

        1. You apparently don’t understand what he meant. He and Nick meant more decentralization, more personalization, and that is a fact.

    3. Obama’s more expensive fantasies in the crib and crack open the door

      However, this may actually have turned out to be true. What with the “unexpected” downturn caused by Bush Jr., and that recession being “deeper than we initially estimated” (hearing that over and over again on NPR gets old) some of his more expensive fantasied probably did die in the crib. His supporters certainly saw him more on the Bernie Sanders end of the spectrum, quietly disappointing many who supported him, which is why Bernie is getting more love from those former Obama voters than is Hillary Clinton.

      Bernie Sanders essentially represents a “this time we mean it” vote.

      1. That recession was a godsend. Spending on BS was just going up and up and up before that. It gave us some breathing room.

  9. This world debt comparison shows our debt/gdp ratio (94%) is near the top of the list, behind only Greece and a few other countries. http://www.economist.com/content/global_debt_clock

    I think this is a far greater problem than “ISIS” or “heroin addiction” or “climate change”, for all the reasons mentioned in the article, as well as the fact that it must eventually be paid back. And in fact the current political circus is to a great extent an attempt to distract us from this.

    1. as well as the fact that it must eventually be paid back.

      We can always default on it.

      1. We can always pass it on to our grandchildren?

  10. Best bet is for the Federal Government to send all of its gold to a company that will pay top dollar and then take out a series of payday loans and title loans on federal property. That should keep us afloat for some time and If its good enough for the poorest amongst us it is good enough for our Government.

  11. So a guy at theWeek was claiming the sluggish economy was due to “austerity” imposed by the republicans when they took office. He argued that we should have been running massive deficits like Obama’s first two years. My jaw about dropped. When is keynes going to actually live up to its billing? The excuse was the stimulus package didn’t do enough because it wasnt big enough.

    This guy seems like a krugman cock sucker

    1. To his limited credit, Keynes was serious about only deficit spending during the bad times and paying off debt during times of growth. I think Keynes once remarked that, in a room of his followers, he was the only non-Keynesian.

      1. Keynes’ mistake was that he told politicians that spending will benefit the economy. Once they heard that the whole “countercycle” part went out the window.

      2. Oh yea i should have probably clarified and meant his “followers” like krugnuts that thinks the govt needs to spend spend spend

        1. Like the stimulus package would have worked had it been more…they always have an out

  12. My memory of stump speeches from nearly a year ago is a bit shaky, but I *think* that more of Team-R was talking about debts and deficits before Trump got big. But then he had his “these other guys want to cut your social security and medicare” speech. That may have made it more dangerous (or feel more dangerous) for Team-R to talk about balanced budgets as it’s just about impossible to get balanced without touching those.

    Similarly, on Team-D Sanders is pushing more expensive layouts from a populist perspective which probably killed any nod Clinton would have given.

    So my off-the-cuff layman analysis is that the populist candidates pushed their respective parties away from service cuts, and without those you can’t balance the budget without raising taxes, another verboten topic.

    1. That’s why Bloomberg is looking better.

  13. I’m still trying to figure out how the heck it’s possible that this year’s deficit is supposedly going to be “only” around $550 billion, considering that the publicly held debt has already increased by more than that just since they “raised and suspended” the so-called “debt ceiling” at the beginning of November.

    That sure is some fuzzy-ass math if I’ve ever seen any. Why, it’s almost enough to make one suspect that we’re being lied to or something.

    On another unpleasant note, we’re about to hit the wonderful number of $19 trillion total, probably in a week from the looks of it.

    1. The government uses cash-basis accounting, so there’s lots of budgetary magic they can do to hide expenses.

    2. The other side of that ledger is $19 T in public sector assets. If you don’t want yours can I have them?

      1. You can have mine at a 10 cents on the dollar. They are sitting in a locked cabinet in Philadelphia. Unfortunately, they consist of government IOU’s itself.

      2. What the fuck is that even supposed to mean?

  14. Since by law Social Security can’t add a penny to the deficit and in fact has been financing the current deficit to the tune of a few trillion dollars I’m curious why it was mentioned in this article? I mean other than sheer stupidity, if it’s that then I understand.

    1. in fact has been financing the current deficit to the tune of a few trillion dollars

      You mean by increasing the internal deficit?

    2. Well, if there’s a law, then it must be true.

      That’s it, we’ll just amend the law to add domestic and military spending to the list of things that can’t add to the deficit. Problem solved!!!!

      Never mind the fact that the government obligations will have to be paid in cash, and that you can only get cash by raising taxes, cutting expenses, or the wonderful hidden tax of inflation.

  15. As deficits rise over the coming years, how much will interest paid on the debt rise with it?

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