by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The CBO just released its latest report on federal finances over the coming decade. As the agency politely put it, “projected deficits over the 2018-2027 period have increased markedly since June 2017.” The rise was almost entirely the result of the spending and tax bills approved last year: Uncle Sam will be spending a lot more while taking in a good bit less in the future. That is, the Republican-controlled executive and legislative branches went wild and abandoned even the pretense of fiscal responsibility. It wasn’t the first time, of course: In the early 2000s, President George W. Bush and the Republican Congress spent money faster than even Lyndon Johnson and his Democratic congressional majority. The latest round of GOP budget-busting provides a dramatic reminder that the spending problem in America is bipartisan. …
… Although the current deficit rise owes much to the recent tax cuts, future hikes will be largely driven by rapid spending increases. According to the CBO, the “increase reflects significant growth in mandatory spending — mainly because the aging of the population and rising health care costs per beneficiary are projected to increase spending for Social Security and Medicare, among other programs. It also reflects significant growth in interest costs, which are projected to grow more quickly than any other major component of the budget.” The agency figures that interest payments will rise three times in total and two times as a percentage of GDP by 2028. Revenues also will increase significantly, but not as fast as outlays.
Unfortunately, big spending and massive deficits have negative economic impacts. More resources will be channeled into interest payments, reducing resources available for other uses, private and public. Moreover, explained CBO, “because federal borrowing reduces total saving in the economy over time, the nation’s capital stock would ultimately be smaller, and productivity and total wages would be lower.” That is, people would earn less while being forced to pay more.