The Congressional Budget Office (CBO) released an updated outlook on the country’s long-term fiscal future on Tuesday. The budget outlook projects that the national debt will grow at a faster rate than the CBO projected in last year’s outlook, and some Republicans have already seized the news to attack programs that support low- and middle-income Americans.
Shortly after the CBO published the new data, House Budget Committee Chairman Tom Price (R-GA) said in a statement, “These debt projections portend a horrible fiscal legacy,” and specifically expressed alarm about “insolvent Medicare and Social Security programs.” Sen. David Perdue (R-GA) also singled out Social Security and Medicare in a statement that claimed, “We’re past the tipping point in this debt crisis.”
But the higher debt projections in this year’s outlook are not surprising — they are the predictable consequence of tax cuts that Congress passed last year. Republican leaders in Congress insisted on passing those tax cuts without paying for them, despite a veto threat from the White House due to the lack of offsetting deficit reduction. President Barack Obama only signed the tax cuts into law after Congress also included important tax relief for working families alongside the tax cuts for businesses.
Republican leaders brushed aside deficit concerns when the tax deal passed at the end of last year. And just a few weeks ago, House Republicans unveiled a tax plan that would increase deficits even more with tax cuts that primarily benefit the wealthiest Americans.
But now some are saying that higher debt projections mean we cannot afford programs that work for low- and middle-income families. Fortunately for the American people, their warning of a looming fiscal crisis is greatly exaggerated. Annual budget deficits have fallen dramatically in recent years, and are currently in line with their historical average. The United States is not facing an immediate fiscal crisis.
Markets are fully confident in the full faith and credit of the United States. The interest rate on 5-year Treasury bonds is currently negative after adjusting for inflation, meaning that investors are literally paying to make a loan to the United States — showing their confidence that the country will be able to afford to pay them back in the future. Even 30-year inflation-adjusted Treasury rates are less than 1 percent, which reflects the fundamental long-term fiscal strength of the United States.
Only moderate changes are needed to sustain programs like Social Security and Medicare. The United States is an extremely low-tax country by international standards. In 2013, U.S. federal, state, and local taxes equaled just 25.4 percent of GDP, much lower than the average tax burden for industrialized nations in the Organisation for Economic Cooperation and Development (OECD) of 34.2 percent of GDP. The new CBO report estimates that the federal government would need to reduce annual deficits by 1.7 percent of GDP in order to prevent the long-term debt from increasing over the next 30 years as a share of the economy. Even if this was done entirely by raising taxes, the U.S. would still be an extremely low tax country.
Cutting taxes and then stoking fiscal panic after the deficit increases is an attempt to use the “starve the beast” strategy to dismantle the safety net and slash middle-class investments. The most recent House Republican budget, which was written by Chairman Price, raises the specter of a “devastating fiscal crisis,” which it claims to solve by cutting non-defense programs — such as health care, nutrition assistance, and Pell Grants — by $6 trillion over 10 years. More than 60 percent of these cuts would hit programs serving low- and moderate-income Americans. Yet the budget doesn’t contemplate solving the fiscal picture by increasing taxes on the wealthiest Americans at all.
The new budget data from CBO largely confirms what we already know. The national debt is stable right now, and long-term fiscal shortfalls can be addressed with relatively modest changes. Dire warnings of a debt crisis are a common tactic to justify slashing effective and popular federal programs, and those warnings should be taken even less seriously when they come from politicians who have no problem with higher deficits when they want to cut taxes.