It's been a while since America's budget deficit has been in the headlines, but the gap between how much money the federal government brings in and how much it spends is growing once again. During fiscal year 2018, which ended on September 30, Washington ran a $779 billion deficit—the largest since 2012. We are likely to hit $1 trillion in deficit spending in the current fiscal year.
Even those massive numbers have struggled to break through in a news environment dominated by presidential tweets and the culture wars. The Manhattan Institute's Brian Riedl is trying, however, to keep lawmakers' eyes on the challenge. In a recent paper, he floats several ways the United States could change course before it hits the financial iceberg. But talking with Reason's Eric Boehm in October, Riedl explains why he thinks the ship is nonetheless more likely to sink than to veer to fiscal safety.
Q: Within the next year, the U.S. government will be running a trillion-dollar annual deficit. How should we think about that?
A: We're about to be hit with a fiscal tsunami that we're not prepared for. The national debt right now is $20 trillion, and we're going to be hit with an $84 trillion shortfall over the next 30 years, according to the Congressional Budget Office—and that's the rosy scenario. One way to think about it is: In order to pay for all of this, your federal tax burden would have to double. As a percentage of the economy, federal spending is going to grow toward European levels.
Q: But is a $1 trillion deficit really that much worse than a $999 billion deficit?
A: From an economic point of view, each marginal billion is not a big deal. But a trillion dollars is symbolically important, and the bad news is that it's only going to get worse. We're heading toward a deficit of $2 trillion within a decade, or even $3 trillion if interest rates rise. Those are numbers that have to get people's attention. We've never had deficits like this during peace and prosperity before.
Q: You argue 2023 is a significant threshold for addressing these problems. Why is that?
A: The proposals that I recommend to avert this debt crisis start five years from now. It's not because we can afford to wait five years—as a matter of fact, waiting five years will make things a lot worse than if we do it now. It's an acknowledgment of the politics at play. Politically, we are not close to being ready for the kind of reforms we are going to need. Not only is the country in denial, the House is in denial, the Senate is in denial, the White House is in denial.
Q: How much of the problem is entitlement spending?
A: Over the next 30 years, Social Security and Medicare will run a $100 trillion deficit: Social Security will run $18 trillion, Medicare $41 trillion, and the interest on that debt will be $41 trillion more. The rest of the budget is going to run a $16 trillion surplus over the next 30 years. In other words, our long-term deficit is 100 percent the result of Social Security and Medicare.
Revenues are going to continue rising above historical averages. Every other part of the budget is shrinking [as a percentage of GDP]. But with Medicare, the average couple retiring today will have paid $140,000 into the system over their lifetime and will get $420,000 back. When you throw 74 million baby boomers into a system that pays you back triple what you put in, it's going to blow up.
The reason I fixate so much on Social Security and Medicare is because the hole is too big to be closed [by cutting] any other part of the budget.
Q: The politics of what you are proposing—of what you are saying is necessary—just seem completely impossible to surmount.
A: There is no appetite for fixing this in Washington. None. Republicans are cutting taxes, and Democrats are proposing $42 trillion in new spending over 10 years. No one is taking this even remotely seriously.
The challenge right now is that when you talk to people about how to solve the long-term debt crisis, everyone has their pet theory that is simplistic, easy to understand, and completely wrong. But as long as everyone has their pet theory on how to fix this, no one is going to be willing to endure the real pain it is going to take.
This interview has been condensed and edited for clarity and style. For a longer version, visit reason.com.