Government borrowing soars despite robust economy
WASHINGTON — The U.S. budget deficit is reaching levels that are abnormally high for a robust economy, and lawmakers from both parties are proposing ideas that would make the deficit swell even further.
The government spent $895 billion more than it brought in from taxes and other revenue sources during the past 11 months, the Congressional Budget Office said this week, a 33 percent increase from one year before.
Typically, the deficit shrinks during strong economic times, as the need for costly government support wanes and tax revenue rises. In 2000, the last time the unemployment rate was at its current level of 3.9 percent, the government ran a surplus, meaning tax revenue eclipsed all spending.
The dynamic is much different now.
Corporate tax receipts fell 30 percent in the past 11 months, the CBO said, precipitated by the large reduction in rates from the massive tax overhaul passed by Congress last year. Spending levels have risen sharply as a result of a bipartisan agreement to shed budget caps put in place to maintain fiscal discipline and pour more money into both military and domestic programs.
“It’s not just irresponsible, it’s wildly irresponsible,” said retired senator Kent Conrad, D-N.D., who added that lawmakers are pushing the deficit higher because of political expediency.
“If you are seeking elective office, the hardest thing in the world is to say, ‘I’m going to raise your taxes or cut spending on popular programs,’ ” he said.
Among the Republicans, the loudest voices recently have come from outside Congress.
“With a booming economy, full employment, a soaring stock market and record asset values, we should be shrinking the deficit, not growing it,” Mitt Romney, a Republican and Senate candidate in Utah, wrote on his campaign website Monday. He said other conservatives have largely been “silent” on the issue since President Trump took office.
Yet there are signs the borrowing binge has only begun.
Leading House Republicans proposed an additional $646 billion in tax cuts this week — a number that could grow to roughly $2 trillion over a decade — and a growing number of prominent Democrats have proposed expanding access to government-sponsored health care, which could add trillions more.
A number of congressional Republicans have defended the tax law’s impact on the debt, saying they believe cutting taxes will ultimately lead to so much economic growth that it more than compensates for the loss in revenue.
“I think it’s a very modest investment in a dramatically better economy where, a lot of people in our country who really lost hope in finding a good-paying job, now have hope and are actively seeking those jobs,” House Ways and Means Committee Chairman Kevin Brady, R-Texas, told reporters last week. “It’s an investment that is paying off.”
As the government borrows to plug the hole between revenue and spending — the deficit — it adds to the national debt by borrowing money. Lawmakers from both parties have said this saddles future generations of Americans with huge fiscal burdens, and it could also make it extremely difficult to respond to an unforeseen shock, such as a financial crisis, a natural disaster or a terrorist attack. And when the U.S. government borrows money, it often must turn to countries such as China for funding, at times complicating already tense relationships.
The government has $21.5 trillion in debt, up from $12.8 trillion in 2010, when a fiscal commission led by Alan Simpson and Erskine Bowles sought ways to reduce the deficit.
And the cost of maintaining this debt is snowballing, driven higher not just by spending but also by rising interest rates.
The government is projected to spend $390 billion on interest payments alone next year, an amount almost equivalent to its entire $401 billion budget for Medicaid, the health insurance program for the poor, according to the CBO.
Congressional Republicans spent much of the Obama administration decrying deficits and forcing restrictions on spending. They largely abandoned those sentiments when Trump took office, as he expressed little interest in continuing the budget fights that endured since 2011.
Trump has prioritized ways to temporarily jolt economic growth as part of his agenda, arguing it will create more jobs. And there are signs the economy has picked up steam, with consumer and business sentiment reaching much higher levels.
But the deficit is also reaching much higher levels. Taken together, the tax cuts and new spending levels are expected to add more than $5 trillion to the debt over the next decade, according to the Committee for a Responsible Federal Budget, a nonpartisan organization that advocates for budget discipline.
“It is amazing that things are so much worse and yet people care so much less,” said Maya MacGuineas, president of the group.
The deficit is projected to reach 4.2 percent of gross domestic product this year, up from 2.5 percent in 2015. The economy is expected to grow by about 3 percent this year, a higher level than in past years, but still not as fast as the deficit. And the deficit has not been this large with an unemployment rate this low in modern history, according to White House data.
When asked about the deficit by his former National Economic Council director, Gary Cohn, Trump replied, “Just run the presses — print money,” according to Bob Woodward’s new book, “Fear.” (The White House has denied much of Woodward’s characterization of Trump in the book.)
As a candidate, Trump promised to eliminate the debt by the time he left office. But his aides have said they don’t intend to pursue such a course. And Trump’s most recent budget proposal fell short of even eliminating the deficit over the next 10 years.
Brady and other Republicans have defended the push for tax cuts, saying it will help the economy and dismissing reports of its impact on the debt.
This viewpoint, though, is disputed by many economists, including those at the Congressional Budget Office and the Joint Committee on Taxation, which have found that the tax cuts will add more than $1 trillion to the debt.
“The problem with the national debt is that a day of reckoning is inevitable, but it’s not imminent as far as anybody knows,” said former congressman John Tanner, a Tennessee Democrat who co-founded the centrist Blue Dog Democrats. “And so our political system — from my experience — deals more with problems that are imminent than it does with problems that are inevitable sometime in the future.”
Trump has vowed to protect Medicare and Social Security, two of the most expensive government programs, from any cuts. Combined, those programs account for $1.7 trillion of the government’s $4.1 trillion budget this year. This has drawn criticism from some Republicans, who have long argued that such entitlement programs represent a grave threat to the nation’s long-term financial stability.
“This will require presidential leadership,” said Rep. Tom Cole, R-Okla. “We didn’t get it out of the Obama administration; we haven’t gotten it out of this administration.”
Washington’s embrace of widening deficits during a strong economy has drawn some criticism from a handful of Senate candidates from both parties, though it’s unclear what they might be able to do about it if they win their November races.
Former Tennessee Gov. Phil Bredesen, a Democrat who is running for the Senate, wrote in a Twitter post Tuesday that huge deficits had become a “structural” component of the government’s budget.
“In the past, when it’s gone up we got back to being balanced,” he wrote. “Right now there’s no path forward.”