Debt and Deficits

Are Trillion-Dollar Deficits the New Norm?

It's time to wise up and start curtailing America's mounting debt.


Trillion-dollar deficits are coming back faster than originally projected. Though it's fair to complain about the impact of the recently enacted tax cuts on our red ink, the ultimate culprits for our upcoming debt crisis are lawmakers who continually refuse to reform entitlement programs.

Consider the numbers. According to the Congressional Budget Office's newly released report titled "The Budget and Economic Outlook: 2018 to 2028," the U.S. deficit will reach $1 trillion by next year. That's three years sooner than projected last year. This year's deficit projection was also revised, increased to $804 billion, or about $300 billion more than projected last year. By 2028, the deficit will be north of $1.5 trillion. Ouch.

These amounts are quite large by historical standards. Between 2022 and 2025, deficits as a share of gross domestic product will be 5.1 percent. As CBO notes, "that percentage has been exceeded in only five years since 1946." For perspective, the authors add, "four of those years followed the deep 2007-2009 recession."

That's why these statistics should be utterly shocking; we're not in a recession. In stark contrast, the CBO projects very healthy growth numbers. Yet federal spending is projected to exceed 23 percent of GDP by 2028. It has historically fluctuated around 20 percent of GDP.

Revenues will fall slightly as a share of GDP following the 2017 tax cuts, before recovering to their historical average by 2025 and exceeding historical averages thereafter. In other words, we have a spending problem first and foremost.

Deficits are now the norm, and the level of federal debt held by the public will continue to mount as the interest on that debt consumes ever-larger amounts of the federal budget. Based on current trends, the debt held by the public is set to reach $15.7 trillion by the end of this year and continue rising to $28.7 trillion by 2028. Also far ahead of schedule, our debt-to-GDP ratio is expected to reach 100 percent by 2028. This level of projected debt is the highest since World War II.

There are real consequences to this mounting debt. First, unless lawmakers control their spending addiction, the United States will have less flexibility to pump up the economy during a downturn or an emergency. Second, as a new study by economists at the Federal Reserve Bank of Dallas finds, a rising public debt-to-GDP ratio harms economic growth. The study looks at a panel of 40 advanced and emerging economies and four decades of data. The economists find that "a persistent accumulation of public debt over long periods is associated with a lower level of economic activity."

In other words, more debt means lower growth and ultimately fewer employment opportunities for future generations. That's because the debt has a negative impact on private-sector investment, productivity, wages, and interest rates. This nasty combo comes with a side of higher taxes, of course.

Most people agree that it's time to act. How to act, however, is still a source of disagreement. Take a recent op-ed in The Washington Post by renowned liberal economists Martin Neil Baily, Jason Furman, Alan Krueger, Laura D'Andrea Tyson, and Janet Yellen. They argue that the country is indeed heading toward a debt crisis and that it's mostly because of the recent tax reform. Not surprisingly, they recommend jacking up taxes to address this problem. Anyone who has looked at a CBO document in the past 20 years should know how bizarre that conclusion is.

The Manhattan Institute's Brian Riedl has issued a data-driven and informed rebuttal, in which he demonstrates that the coming debt crisis is overwhelmingly and undeniably the result of the coming Social Security and Medicare deficits. He writes, "CBO's Long-Term Budget Outlook shows that between 2017 and 2047, Social Security and Medicare will run a cash deficit of $82 trillion." He adds, "The rise in Social Security, Medicare, and resulting interest costs from 8.1 percent to 16.4 percent of GDP between 2017 and 2047 determines nearly the entire rise in budget deficits. The subsequent tax cuts (perhaps one percent of GDP) do not negate this broad narrative."

The bottom line? Our debt is growing, and it's growing fast. Though it's a shame that lawmakers passed tax cuts without cutting spending to offset short-term losses in revenue, there's no doubt that Social Security and Medicare deficits are almost entirely to blame for our impending debt crisis. It's time to wise up and reform these programs.

NEXT: Clear the Runway: The Fight Over 'Uber for Planes' Is Coming to Congress

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  1. Really makes me wonder what’s going to happen. The possibility of Congress and a President ganging up to lower spending is ludicrous. But the alternative is becoming like Greece. Especially the rise in paying interest; I think that has the best chance of grabbing some populist’s attention, anyone can understand the comparison to rising credit card debt, and everybody knows government wastes a lot of money on a lot of stupid things; whereas Social Security and MediCare are the third rail and untouchable, at least in the beginning. Maybe even Trump will latch on to that for his next big gambit; I simply can’t imagine any current mainstream politician doing the deed and alienating voters and Congress critters.

    Going to need a lot of popcorn and patience.

    1. The future isn’t Greece. It’s Japan. Lack of growth for generations to come. Every time things look like they might grow, the rising interest rates on the existing debt that’s rolled over will kill it off. When things falter, we’ll find more ways to add to the debt since otherwise we face a full-blown permanent depression. We won’t default or repudiate the debt (that would be a hyperinflation). We will just strangle the future. And the sad reality is that because the US has built itself on the idea of a better future, we can delude ourselves into mortgaging that future more.

      It will likely end with a very bloody war. That’s how most long-term credit/debt cycles end/restart.

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  2. We’re probably screwed until things really blow up and we’re in a depression. I’ve pretty much always assumed that’s how this will play out, and I have seen nothing to change that opinion. Most people are too low IQ and low information to have any appreciation for long term planning, so they happily vote for politicians who are destroying the country and their own future prosperity.

    My personal plan is just to make enough money where I won’t give a shit when everything falls apart because I’ll still be comfortable. Heck, I may even be able to benefit from it since I plan to have most of my money in hard assets I have direct control over. We’ll see.

    1. My plan is to be dead. Average life expectancy is about 78 years and I figure the blow up won’t happen in the next 8 or even 18 (Congress can juggle that well) years. I’m sad for the rest of you (I’m especially heartbroken for the poor children) but I think we all know that there is nothing we can do.

      1. This is my grandmas plan! She’s already 85, but probably doesn’t have too much longer with her health. I envy her in many ways… She was basically born at the perfect time in history IMO. She just road out the golden age in America, and is going to kick the bucket before things get too bad. We may be technically richer today, but the world is a lot crappier place for freedom and in many other ways too compared to 50 years ago.

        Maybe if the ANTIFA thugs start a civil war which gives us an excuse to deal harshly with “that sort”, and we get this country straightened out, I will have lived in the even better golden age… But I’m not holding my breath.

    2. I have pretty much done what you say. I have early-retired and because I have pre-paid my taxed via Roth conversions, my AGI is low, and so I qualify for the ObamaRomneyHeritageCare Medicaid expansion. I figure that that benny is equivalent to me making $20K pre-tax were I to be still slaving away for the Man.

      Oh, and being retired, I can live at the outskirts of the exurbs where folks at the lowest level of income need to go to “qualify” (while not attracting the inner-city welfare class, since there is no public transportation).

      1. Shifty bastard! Makin’ me pay for your Obamacare!

        I’ve always been torn between the Ayn Rand “Hell yeah I’ll take my social security check, I paid for it!” opinion, and the “Fuck the government, I will never use a dime in welfare so I can bitch about it with a clear conscience!” opinion.

        Thus far I’ve never taken a dime. I even refused to collect unemployment money I could have when I still had jobs when I was younger. Other than guvmint schools, roads etc I have never taken a dime. It makes me feel good when I bitch about things, but there are some things I’d obviously take, like my Social Security money if it still exists when I’m old. Not that it will. LOL I’ve also been torn on some of the business incentives, since I own businesses. Should I choose to accept business incentive money that’s available for doing XYZ things? Never done it, but sometimes some of those horrible programs seem tempting… For now I’m still practicing what I preach, but I can’t guarantee I’ll not suck on the government teet just a little bit at some points…

    3. “… I’ve pretty much always assumed that’s how this will play out, …”

      That was also my assumption since the 1990s. The blow-up came in 2008, right on schedule, as baby boomers started to retire. There should have been a reset, a new era of innovation. Instead we got the authoritarianism and central planning of Obama/Trump and no viable way out of this mess.

      America is in for a decades long slow decline. Another region will rise, maybe Africa after overdue political change. I won’t live to see it.

      1. Yeah, the boomers retiring is still a pretty looming threat. As they all have to start selling off their stock holdings, it should be near impossible for the market to stay as high as it has been too.

        It won’t be Africa. Africa is too much of a shit show in every single way, and they’re still breeding too fast to make headway on building per capita wealth. Asia and Latin America will continue to grow though. I’d be surprised if Africa (on average, some countries might do better) had the standard of living China has today in 20 years. Africa probably will be the last place in the world to outsource the few low skilled manual labor jobs that exist in manufacturing to though once the poorer Asian countries get their standard of living raised. But with automation there won’t be as much of that to go around either sooo… They’re probably just perpetually screwed.

  3. My personal plan is just to make enough money where I won’t give a shit when everything falls apart because I’ll still be comfortable

    Think this is the plan of most people, including me. Problem is that very few Americans are in this position-most are drowning in debt from mortgages, student loans, medical bills, etc. because of government policies that have encouraged borrowing for the past 30 years at least. Neither dems or the GOP wants to deal with this because it would be political suicide, and the dems willfully ignore debt because if they thought about it, it would undermine their free shit for everyone philosophy.

    1. Damn squirrels ate my better post! Here’s a half assed one along the same lines.

      I don’t buy a total collapse coming any time soon, so I figure there is time. And I think it will be a slow death, versus a bang anyway. There are ways to play off of it though too. For instance having debt backed by real assets that will appreciate accordingly with a rapidly inflating currency… Real estate say? You don’t need to be loaded to be SECURE either.

      Most middle-middle class people on up could easily be financially independent and secure if they’d stop pissing away all their money on dumb stuff. It’s not that hard really. Just stop buying useless stuff you don’t need for a couple years and magically you have the money to buy a rental property, or invest in something else. I’ve been tight wadding it up the last few years for just this reason. It’s been lame, but it’s gonna be awesome 10-20-30-40 years from now. Deferred gratification is the name of the game!

      1. It’s impossible to for everyone to be secure, as there needs to be folks who are motivated to work. Everyone socking money away would simply mean high asset prices. Our savings system relies on a lot of folks NOT saving.

        1. Yes and no. Americans used to save far more than we do today, and carry less debt. The finance sector sure as hell would shrink if people were more responsible, but other things don’t have to change. I think in China the average savings rate is something like 30% of their gross income! Can you IMAGINE if America did this??? Japan I think is around 20% IIRC.

          It can be done, and it’s not a bad thing. People that are secure in their personal finances still have incentive to work. If you could theoretically have 50K a year in passive income from investments, but are in your saaay early 50s, MANY people would choose to continue to work that 100K a year job so they have 150K a year to spend/invest as they see fit. I surely would, I mean I basically do right now!

          I’m only 32, but my main business can be VERY passive if I wanted it to be. I could choose to work as little as maybe 20-30 days a year on it if I wanted. Basically just accounting and paying vendors. Pretty easy. I could choose to move somewhere suuuper cheap, live very frugally, and basically retire in my early 30s if I wanted to! Yet I still work because I want to have higher income so I can invest more, and spend more on things I want. Most people do the same.

  4. Only until the tens of trillion dollar deficits start being the new normal.

  5. I’d like to believe that at some point taxes will no longer be able to be raised anymore and all taxes collected will be going to fund the debt, and maybe at that time it might occur to someone in government that they have to change.

    You may say I’m a dreamer, but I’m not the only one…

    1. Considering that some people take student loans, pay only the interest and then complain they still owe what they borrowed 10 years later. uh yeah.

      How many people know the amount of tax payer money is spent on servicing the interest of the debt this year? Or any year for that matter.

    2. Hillary was going to IMO,event a negative interest rate plan, with compulsory savings. That was the gist of her Goldman’s Sack speech. In return for their collaboration, I mean cooperation, they would be given an opportunity to wet their beaks.

      1. ‘Implement’.

  6. at least until we hit a gazillion…but with the cretins we have in congress (or either flavor) the sky’s the limit.

  7. It’s only money. So what.

    1. This is actually a legitimate argument for the USA. We have the ability to grow our won food and supply our own energy all the while maintaining a massive military, without the USD.

  8. They’re not big enough.

    /Paul Krugman.

    1. It’s kind of sick you people bringing liberals into this when the explosion of the deficit, which liberal Obama had reduced, is happening entirely because of Republican policies.

      No wonder you people have adopted a convenient cynicism about all this. You can’t figure out who’s actually to blame for anything you purport to care about.

      1. Give it up.

        How well of a job did Obama do if there was 10T added to the debt under his time at the Whitehouse?

        1. But look at all the Republican-controlled cities filing for bankruptcy!

        2. Not because of anything he did.

      2. He reduced the deficit when he winded down (but didn’t end) some military engagements. But then he also implemented Obamacare, so it’s a wash.

        Throughout the Obama years you insisted here that the economy was more important than the deficit. In other words, it was OK for Obama to spend money we didn’t have to fund whatever stimulus and ‘cash for clunker’ sort of projects that were meant to bolster the economy.

        Trump’s tax cuts will take in less of our money, which adds to the deficit. We could address that by cutting spending, the libs will never agree to that. And the deficits cannot be reduced if we don’t cut entitlement spending, which is the primary driver of the deficit.

        1. How much did Obamacare add to the deficit, again?

          1. The damage is still being assessed. You and your friends have a lot of blood on your hands.

          2. Billions over several decades.

            The CBO projected that repealing the individual mandate would reduce the deficit by 330 billion. For ACA to have a real impact on the deficit, it had to spend less.

            We didn’t have extra money lying around to fund this scheme. The subsidies which was unconstitutional since congress never voted on it.

          3. Billions over several decades.

            The CBO projected that repealing the individual mandate would reduce the deficit by 330 billion. For ACA to have a real impact on the deficit, it had to spend less.

            We didn’t have extra money lying around to fund this scheme. The subsidies which was unconstitutional since congress never voted on it.

      3. Some people are always trying (and I am cynical enough to think that they do it on purpose) to conflate ‘debt’ and ‘deficit’, trying to pretend deficit equals debt and that therefore Obama was SAVING money. The deficit is a one year number of revenue minus expenditures. If the result is a negative number, it is added to the debt. The debt is the CUMULATIVE number of all the deficits since 1789. Obama doubled the National Debt to almost #20,000,000,000,000. Before him Bush the Shrub doubled the National Debt too. Clinton (and Congress) had a surplus ONCE. Before him, the only other surplus in modern time has been Nixon ONCE. Otherwise red ink as far as the eye can see. Stop pretending Obama saved money — it’s . . . . unseemly to lie THAT much.

        1. Clinton did not have a surplus. The US was cash flow positive, but the accrual debt was always higher than the net cash flow. The last time the US had a real surplus was in 1957. Total US debt actually declined that year.

      4. The Manhattan Institute’s Brian Riedl has issued a data-driven and informed rebuttal, in which he demonstrates that the coming debt crisis is overwhelmingly and undeniably the result of the coming Social Security and Medicare deficits.

        Right there you fucking retard. Your welfare state is the problem. Full stop.

      5. Tony, you really do have all the intelligence of a glass of water. You’re still on here trying to push the risible idea that Obama’s “deficit” was lower than any Republican president. Who gives a flying fuck about that red herring. He doubled the national debt to 20T. That’s all anyone who isn’t a single-celled organism should care about because it’s the only figure that matters. If the debt goes up, and it did under both Bill Clinton and Obama, then saying the deficit went down is disingenuous as shit.

        As for your performance on the Paul Ryan article, you parroted the usual claptrap about how the government will “save a little” by eliminating tax cuts. To believe that, you also have to believe the government owns all money and they’re just being kind when they let us keep some. That goes against everything upon which this country was founded. Tax cuts are not spending, unless you’re dumb as a sea anemone.

  9. Most people agree that it’s time to act.

    How about a law requiring the Debt to be payed off by 2025?

    I mean, we do it with automotive fuel economy, right?

    1. Consider we pay a little more than 400 Billion just on the interest. Say you want to pay the debt off in 20 years. We would need to freeze adding money to the debt, and pay around 1.4T a year to do it.

      Not gonna happen.

      1. Well, we have to do *something*.

        *** kicks pebble ***

        1. Exactly.

          Hey who knew getting deep into debt would cause problems when you try to pay it off.

          Ordinary people file bankruptcy. If only we had a president that was familiar with the process.

    2. How do we force Congress to pass it?
      By the way, I would be happy to bring it back to $5T. Nations NEED debt
      The only person who payed it off completely was Andrew Jackson. And the result was one of the most intense recessions in out history.

      1. True. A healthy amount of debt is around 40%. If there is no debt, then people are not buying bonds. Canada was down in the 40% range with the oil sands and spending cuts, until they decided to return to progressivism. Brilliant.

  10. It seems like every administration in my lifetime has doubled the deficit. So yeah, it will be the new normal, until ten years from now when three or four trillion is the new normal. Ten trillion ten years after that.

    1. I believe that has happened with every president starting with Reagan.

    2. Debt at the end of Jimmy Carter presidency $998 Billion
      Debt at the end of Ronald Reagan presidency $2.8 Trillion
      Debt at the end of George H. W, Bush presidency $4.4 Trillion
      Debt at the end of Bill Clinton presidency $5.8 Trillion
      Debt at the end of George W. Bush presidency $11.657 Trillion
      Debt at the end of Barack Obama presidency $20.245 Trillion

      It would appear Bill Clinton was (as concern debt) the ‘best’ president of modern times. He only blew $1.396 Trillion.

  11. “Are Trillion-Dollar Deficits the New Norm?”

    Why would anyone ever recast George Wendt? And with a huge deficit? I know Norm is supposed to be a heavy set accountant, but this just sounds silly to me.

  12. The government will never lower spending. We may get a President who is willing to do that, but never a Congress. And Congress can link wasteful pork barrel spending to something the President really truly wants. So, in the end, every President will sign off on tons of pork barrel spending.
    What troubles me the most is there are so many Americans on Social Security who don’t realize or accept that, after about seven years or so, they will have exhausted THEIR contribution to the Social Security Fund and that, from then on, they are living on other people’s contributions and government largess. When that is combined with the drastic benefit cuts that will happen after the Fund is exhausted, there is a ‘perfect storm’ approaching.
    But no one will listen.

    1. Yes it will. The recipe is easy. First it will mandate uniform SS benefits 10-20% above the minimum. That basically saves SS but makes it even more explicitly welfare. Next it will increase Medicare co-pays and premiums for all of those morons who paid the most taxes and were dumb enough to save for their retirement. Then the fun really starts. Does anyone really need a 401k balance over $500k? I mean, it’s just not fair and the grasshopper is HUNGRY. Throw in increased OASDI taxes and maybe some juicers for medicare on capital gains and you can continue to borrow and limp your way along.

      Yup, we get to be as shitty as France but with worse bread.

      1. The Democrats will have no problem voting to raise taxes on the wealthy to raise the revenue needed to fund the bennies for everyone.

        1. You can’t. There isn’t enough money. Doubling the top two marginal tax rates to 70 & 74% STILL doesn’t close the gap.

        2. It will be called taxing the wealthy, but small business, self-employed, the uppity lower middle class will end up paying. The actual rich will have their lawyers, accountants and lobbyists arrange tax breaks, subsidies and government grants.

    2. Oh, they accept that they get more spending in Social Security; they are just in the position of rentier beneficiary, so they go along with it.

    3. Yes, all you have to do is listen to the interviews with Thomas Massie or Justin Amash (or just look at what Congress has done in the past two decades). You will see that there is virtually no will to do anything substantial. Like Amash said in the Reason interview, the leadership does not want to do anything because they might then be held accountable. If you just let things roll on, then when things are good you claim credit and when things go badly, you blame the administration or something. From time to time, something comes along that motivates them to do something and it is usually bad. (Obamacare, Homeland Security, The Patriot Act, FOSTA) And for at least a couple of decades people have said that if we could just restrain growth, we could get out of this, but they cannot even do that. And it is truly laughable that whichever party is out of power immediately bemoans the deficits and out of control spending. And people seem to just accept it and move on.

  13. Yes, now post something like this every fucking week, Reason, and you can reclaim some fiscal high ground.

  14. “…there’s no doubt that Social Security and Medicare deficits are almost entirely to blame for our impending debt crisis. It’s time to wise up and reform these programs.”

    True these programs are fiscally unsound, but the cost of maintaining an empire surely ranks up there as just as bad. Reigning it in would be the least painful way to reduce the annual deficit. For example, would average American’s complain, be affected, or even know, if our “Africa Command” were eliminated overnight”?

    1. No, it doesn’t. Zero out the defense budget and you still go bankrupt.

  15. It’s obviously that the American people want this level of spending. And contrary to canonical Republican dogma, they do not want the tax cuts (i.e., look at how poorly the tax cuts are polling; the American people know that a tax cut now is simply an intergenerational tax transfer). So the answer is to repeal the tax cuts, and then even raise taxes. The good thing about income tax is that it is only assessed on, and relative to, income, so in this time of precarious employment prospects for folks, they would rather have the social insurance for the bad times, and pay for it whenever they get to good times.

    1. The tax cuts are polling better than Obamacare. And you can’t raise taxes enough to fix this unless you hit the middle class hard. That is never going to happen.

  16. What struck me as funny (in a sad way) is the comment about publicly held debt hitting 100% of GDP in 2028. Based on some rough calculations, that seems to assume 4% growth per year for the next 10 years with no recession. That seems VERY unreasonable, particularly given that we are about nine years out from the last recession ending. And the record time between recessions will occur long before 2028. So, expect that to happen before 2028 if they do not get moving on this. The trouble is that it seems like the government will wait until they really see the problem and at that point it will be too late to address it without taking drastic action.

  17. I don’t understand why anyone cares. With a fiat currency, the fed can ALWAYS just print more money whenever it wants – the US need never default on any debt. Once debt servicing becomes unmanageable/unsustainable, a brief period of hyperinflation will eliminate most of the stress in the system. Hyperinflation is orders of magnitude more likely to happen than paying down debt.

    1. Truth. But hopefully not hyper… If we had some good ol’ 8-10% a year inflation for a couple years like in the 70s, we’d make the real debt go down VERY fast. I’ve always thought this is the most likely outcome at some point with respect to the debt, but one must remember this will have vast implications. The economy will likely get super messed up, lots of job losses, foreign countries will probably stop taking the dollar/investing in our debt, which means we won’t be able to continue our unsustainable trade imbalance anymore, etc. Real wages could also fall dramatically, which is frankly what would/should have happened to us because of the trade deficit if our currency wasn’t the world reserve anyway.

      It’ll be as big a shit show as defaulting almost. There’s no way to get off completely scot free.

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