As the president and Congress bicker about the budget items associated with federal sequestration, Barron’s editorial page editor Thomas Donlan offers a sobering reminder.
The automatic cuts that took effect last Friday are most significant for what they do not do. Medicare is held to a 2% reduction, while Social Security, the earned-income tax credit, food stamps, pension payments, and veterans’ benefits will be unaffected. These entitlement programs are spending more than $2 trillion this year. Because those programs are so large, federal spending will continue to grow this fiscal year whether the automatic cuts take effect or not.
These programs will grow every year, even if the government can comply with all the spending restraints on the books for the future. Such details as the expiration of our temporary budget at the end of the month and the restoration of a ceiling on the federal debt may cause government shutdowns and fiscal crises, but federal spending for entitlements, also known as mandatory spending, will just keep rolling along.
Unstoppable Momentum
The CBO only looks ahead one fiscal decade. For the long view, we turn to the Government Accountability Office, which runs computer simulations to find out what might happen if we just keep rolling along.
By 2027, federal debt would surpass the peak percentage of gross domestic product reached at the end of World War II; by 2040, it would hit 200% of GDP, and it would continue to rise, thanks to deficits running at more than 15% of GDP each year, driven largely by rising retirement and medical expenses for the baby-boom generation.
This is not a prediction, just a straight-line extrapolation of current policies. Perhaps it can’t happen, but we have no idea what will happen instead.
