Speaking Tuesday evening to a joint session of Congress, President Donald Trump likely will give Americans an outline of the federal budget he will propose. Advance news coverage has focused on speculation that Trump will suggest a big increase in defense spending and cuts to domestic agencies.
How Congress and the president allot spending in fiscal 2018 is a crucial question. Here’s another: At what point does America’s total debt — and the huge interest payments on that debt — choke the government’s ability to do much of what we take for granted today?
Trump got plenty of disagreement when he said at his first presidential news conference, "To be honest, I inherited a mess." In some areas he didn’t acknowledge, such as the economy, things actually have improved in recent years. But in one respect, the president had an irrefutable point. The financial state of the government is a mess on a gargantuan scale. And cleaning it up is an urgent necessity.
At the close of the Great Recession, the federal budget deficit hit a record $1.4 trillion in 2009. As the economy recovered, it shrank, but last year, it started upward again. By 2023, the Congressional Budget Office estimates, the red ink will once again reach $1 trillion.
That’s not the whole of the problem by a long shot. In the next eight years, says the bipartisan Committee for a Responsible Federal Budget, three federal trust funds — for highways, Social Security disability insurance and Medicare hospital coverage — are expected to run out of money. The Social Security Old-Age and Survivors trust fund, fortunately, will be solvent a bit longer — till 2030. Without reforms, Social Security payments to older Americans will drop. Yet Trump doesn’t want to change the grim trajectories of entitlement programs.
"President Trump has taken office with higher levels of (federal) debt as a share of the economy than any president other than Harry Truman in 1945," the CRFB notes. Given current trends, the debt could hit a historic record of 106 percent of GDP by 2035 — when babies born this month will graduate from high school. By 2050, the Congressional Budget Office estimates, our debt could be a crushing 150 percent of GDP. If you want to see the potential effects, look at Greece.
Just halting this fiscal deterioration would be a challenge for Congress and the president. Turning it around would take measures that, in the current political climate, border on the heroic. Yet tough decisions now are the only way to avert excruciating ones later.
Is there any will in Washington? We’ll get a fresh sense of that Tuesday. It was discouraging that as a candidate, Trump offered plans that, according to the Tax Policy Center, would add some $7 trillion in new debt over the next decade. House Republicans didn’t offer cause for hope when they approved a budget resolution that projected an addition of $9.1 trillion in that time frame.
Trump did name former U.S. Rep. Mick Mulvaney, known as a budget hawk, to run the White House Office of Management and Budget. OMB, The New York Times reports, has drafted a list of programs to eliminate, including the Export-Import Bank, the Office of National Drug Control Policy and the Corporation for Public Broadcasting. The list suggests the budget office, at least, is not averse to tough fights.
But not everything that costs money deserves to be zeroed out: The Ex-Im Bank, for example, actually makes a profit for the government. And none of these programs is a big-ticket item. Killing them all would save about $2.5 billion a year — in a budget of $4.2 trillion.
Most of the expected growth in spending comes not in these discretionary programs or in defense but in big entitlements. "Social Security and federal health spending are responsible for 63 percent of nominal spending growth and 93 percent of spending growth as a share of GDP over the next decade," says CRFB.
Reversing the spiral would require Congress and the president to tackle these programs. House Speaker Paul Ryan has proposed putting Medicare on firmer footing with a "premium support" model, giving future retirees money to buy private insurance. He also wants to convert Medicaid to block grants that would spur states to devise efficiencies. But Ryan may face resistance from Trump, who during the campaign vowed to "save Medicare, Medicaid and Social Security without cuts."
Another distressing signal from the White House: It projects that economic growth will be much higher than most economists think is plausible — over 3 percent per year, a big jump from the roughly 2 percent per year during the Obama years. If that happens it would boost federal revenues.
But beware the dangers of wishful thinking. CRFB President Maya MacGuineas told The Wall Street Journal: "The risk is that rosy economic scenarios allow us to borrow trillions of additional dollars in the next couple of years, doing real damage" if the bullish growth forecasts don’t pan out.
A wiser approach is to assume growth will remain lower — and enjoy the windfall if it speeds up. That approach also includes steering the debt toward a lower percentage of GDP.
Is Trump interested in that wiser approach? Tune in Tuesday at 8 p.m. CST.
Join the discussion on Twitter @Trib_Ed_Board and on Facebook.
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