The Congressional Budget Office has released its latest long-term projection for the economy. While the CBO suggests that increased immigration will boost the long-term economic growth rate, it also predicts critical challenges.
As the CBO puts it, “Federal debt held by the public, measured as a percentage of GDP, increases in every year of the 2024–2054 period. By 2029, that debt climbs to 107% of GDP, exceeding the historical peak it reached immediately after World War II. In 2054, it reaches 166% of GDP and remains on track to increase thereafter. Such large and growing debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook.”
The CBO predicts that by 2054, 6.3% of GDP will go to interest payments on the national debt. Applied to the 2023 U.S. GDP, that would amount to $1.64 trillion. Just on interest payments. In these conditions, the nation would have very little money to spare for national defense or anything else, for that matter, anything except entitlements. Rising interest payments would reduce private investment and economic potential. America would be poorer, and Americans would have fewer possibilities to pursue happiness.
The drivers of this fiscal crisis to come are not debatable: an aging population driving up Social Security and Medicare outlays. Lifetime entitlement benefits already exceed lifetime entitlement tax payments for most individuals. And the gap between lifetime entitlement dollars received and lifetime entitlement tax dollars paid is only increasing.
Unfortunately, President Joe Biden has ruled out changes to entitlements, and former President Donald Trump has effectively done the same. The only hope, then, is a bipartisan joining of Republicans and Democrats in Congress who care more about math and the nation than they do about partisan posturing. As Speaker of the House, one might have hoped Rep. Mike Johnson (R-LA) would take a lead here.
Forget it.
In an interview with CNBC on Thursday morning, Johnson was asked by host Joe Kernen whether entitlement reform should be considered in order to address the structural national debt. He was clear: “No, we shouldn’t.”
Johnson instead claimed that Republicans have produced a plan to balance the budget in ten years. The Speaker claimed, “It’s possible to do, but it takes very tough political choices. It takes political courage, and I think you’ll see that in the days ahead because, again, I believe the stakes are too high.”
This is impressive fiction.
As the Committee for a Responsible Budget notes, the House Budget Committee resolution to which Johnson refers relies on unspecified cuts to “appropriations and improper payments — which will almost certainly not materialize. Aggressive assumptions about economic growth account for more than one-fifth of its savings. And while it is good that the budget calls for deficit-neutral tax policy rather than tax cuts, it lacks specifics on how expensive tax cut extensions will be offset.”
Next, Johnson was asked if he would support the formation of a Simpson-Bowles-style fiscal commission. His response was laughable. The Speaker said he would support that commission, just as long as its members “don’t go in with the idea of raising taxes … I’m a limited government, fiscal conservative.”
Host Becky Quick pushed back, suggesting that it was unserious for Johnson to claim he supports a bipartisan commission but only on terms that Democrats will never accept. The Speaker responded, “I think that there’s a thoughtful discussion that needs to be had here … but at the end of the day, I believe our principles are the ones that need to be presented.”
Translation: unless Republicans intend to completely slash defense spending and all other areas of discretionary spending, something that seems completely implausible, their plan is utterly unserious. Yet even were it introduced into law the plan would still not address the core driver of the national debt: entitlements.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Oh, and talking of defense spending, take this line from the CBO’s report: “From 2024 to 2034, in CBO’s projections, about half of all discretionary outlays, on average, are dedicated to national defense, largely reflecting the allocation in 2024.” Considering that defense spending is low by a historic percentage of GDP standards and that a major war with China is more likely than not in the next decade, there is a high probability that the CBO is massively underestimating both future defense spending while also ignoring the heavy economic costs of any war with China. So the fiscal outlook is actually even worse than it appears!
Reason’s Peter Suderman had the best response to Johnson’s comments, “I, too, support losing weight without changing either diet or exercise.”
