The United States federal deficit surged nearly 20 percent through the first 10 months of 2018, owing to both the recent tax cuts and increased spending. While Republicans and Democrats have been at each other’s throats through much of the year, they found common ground to come together to hand out pork that both parties savored.
The data comes from the Congressional Budget Office (CBO), so this isn’t merely partisan posturing. Perhaps most worrisome, the deficit is exploding even as the United States is enjoying a sustained period of economic growth. Traditionally, the United States has tried to reign in deficit spending during periods of economic expansion while stepping up government spending during economic downturns.
The deficit will reach $793 billion by the end of the year, and it is projected to hit $1 trillion per year by 2019. As debt continues to accrue, interest rates are expected not only to rise but also to become one of the biggest annual expenditures for the federal government.
In fact, the CBO projects that within 30 years, the federal government will be spending more on servicing debt than it does on defense or social security! If this comes to pass, future generations are going to be burdened under immense debt, struggling to pay for our profligate current spending. Future generations might have to gut their own retirement accounts and drastically scale back defense spending, among other things, simply to pay for today’s overindulgence.
The continued reliance on deficits is simply an act of kicking a can down the road. While we spend money today, we increase burdens on taxpayers in the future. Indeed, as we borrow money, we’re essentially borrowing from future generations.
Sometimes, that might be necessary, say, during a deep recession. Government spending can be used to prop up weak demand, which can stimulate business activity.
However, the United States is not in the middle of a recession. Indeed, the economy is hot, expanding by 4.1 percent in the second quarter, marking some of the highest economic growth seen in years. It’s quite possible, likely even, that President Trump’s tax policies contribute to this fast growth. Still, the strong economic growth is proving to be insufficient for closing the deficit.
The United States needs to start making some tough choices. Either we need to cut spending or raise tax revenues. Both undertakings would come with serious risks. Cuts to spending could erode America’s participation and leadership in R&D and science if such funding is targeted. Likewise, raising taxes too high could slow the economy and even reduce tax revenues as more people move to shelter their money.
The answers aren’t going to be easy to formulate, but we need to act now before it’s too late. As debt servicing costs continue to rise, the U.S. will eventually approach a point where it’ll no longer be able to pay for debt without incurring extensive costs and hardships, or taking other extreme measures, such as mass quantitative easing, through which the government essentially prints new money.
This is where people often like to start screaming about Obama and his deficits or George W. Bush and his debt pile. There’s a lot of debate regarding both, but to be quite blunt, it’s immaterial. It’s said and done and we can’t change the past. However, we can make better decisions in the future. Not only can we do so, but we must do so.
If not, we’re going to force future generations to make immense sacrifices all because we were unwilling to tighten our own belts.
