– America’s “debt crisis is coming soon” warns economist Martin Feldstein
– To avoid economic distress, the government has to reduce future entitlement spending
– The most dangerous domestic problem facing America’s federal government is the rapid growth of its budget deficit and national debt
According to the Congressional Budget Office, the deficit this year will be $900 billion, more than 4% of gross domestic product. It will surpass $1 trillion in 2022.
The federal debt is now 78% of GDP. By 2028, it is projected to be nearly 100% of GDP and still rising.
All this will have very serious economic consequences, and the CBO understates the problem. It has to base its projections on current law—in this case, the levels of spending and the future tax rules and rates that appear in law today.
Those levels don’t match realistic predictions.
Current law projects that defense spending will decline as a share of GDP, from a very low 3.1% now to about 2.5% over the next 10 years. None of the military and civilian defense experts with whom I’ve spoken believe that will happen, given America’s global responsibilities and the need to modernize U.S. military equipment. It is likelier that defense spending will stay around 3% of GDP or even increase in the coming decade. And if the outlook for defense spending is increased, the Democratic House majority will insist that the non-defense discretionary spending should rise to match its trajectory.
If defense and other discretionary spending stays steady as a share of GDP, the annual deficit will increase by nearly 1% of GDP—from 4.2% of GDP now to about 5% of GDP 10 years from now. At the same time, the tax increases in current law that the CBO assumes will occur during the next decade as some of the recent cuts are phased out probably won’t happen. Congress will face strong political pressure to avoid a functional tax increase.
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