There was good news and bad news about the federal government’s finances this week. Let’s start, and end, with the good news.
The Congressional Budget Office (CBO) this week estimated that the budget deficit – the amount the federal government will spend over what it will collect this fiscal year alone – will be $642 billion, much lower than expected.
That would be the smallest amount since 2008. For the past five years, the government has added more than $1 trillion to the accumulating national debt every year. This year’s deficit also would be much smaller as a portion of the economy than in recent years – 4 percent of the gross domestic product versus 10.1 percent in 2009. Moreover, if current laws don’t change, the deficit is projected to continue to shrink for a few years, reaching a low of $378 billion in 2015.
These boring numbers are important because they represent the money we’re blowing that our children and grandchildren, and their children and grandchildren, will have to repay. The national debt – the unpaid bills the government has amassed since it started going into debt in 1836 – is now approaching $17 trillion, or more than $50,000 for every American man, woman and child alive today.
The CBO is nonpartisan and generally trusted despite having the word “Congressional” in its name. It says the government’s fiscal situation is improving because of several factors: higher revenues thanks to changes in tax laws and an improving economy; decreased spending because of the sequester cuts; and because mortgage giants Fannie Mae and Freddie Mac have promised to pay back the government almost $95 billion of their bailout money.
Please remember this the next time a politician tells you that the only way to balance the budget is to stimulate the economy through tax cuts and/or spending binges. The improving economy and brightening budget outlook are occurring in the wake of tax increases for wealthy Americans, an end to the payroll tax holiday that has resulted in us all paying more into Social Security, and the sequester that had the Obama administration closing airport towers and canceling White House tours.
In other words, taxes went up, and revenues also are increasing, from 15.8 percent of GDP in 2012 to 17.5 percent this year. Meanwhile, spending decreased in certain areas. You may recall that either the tax increases or the spending cuts, or both, were supposed to cause the sky to fall, depending on who was talking.
That’s not to say that all tax increases are good and all spending is bad, and it’s certainly not to say that more government is good. It’s to say that when your income doesn’t equal your outgo, you need to change that equation, probably through some combination of more income and less outgo. That’s bitter medicine, and no one likes to swallow it. But don’t let snake oil politicians try to sell you an easier remedy.
Now the bad news. The $17 trillion national debt will continue to grow, and at an accelerating rate in a few years for a number of reasons, including the country’s aging population, the costs of Obamacare, and rising interest payments on the debt. Currently, the government is paying very low interest rates on the money it is borrowing, but that will change eventually and could change suddenly.
The biggest problem with this latest CBO announcement is that it is happening absent members of Congress and the president making hard choices about tax reform and spending. It would be nice if they would take advantage of this respite to make some of those hard choices. But instead, this just gives them more breathing room and an excuse to procrastinate. Washington these days needs a crisis to do anything, and even then, it doesn’t do much.
I said I would end this column with good news, so let’s return to the top. Last year, the federal budget deficit was $1.1 trillion. This year, it is expected to be $642 billion. That’s good news, despite the ways that it’s bad.
Steve Brawner is an independent journalist in Arkansas. His blog — Independent Arkansas — is linked at arkansasnews.com. His e-mail address is firstname.lastname@example.org.