The $2 Trillion Deficit

Plus, Trump’s Iron Dome; Jewish and Palestinian genes

Spending, not revenue, is the main driver of the deficit, this new Congressional Budget Office chart shows.

The Congressional Budget Office today released an update to the budget outlook, projecting a $2 trillion deficit for 2024, or about 7 percent of GDP. “Measured in relation to economic output, federal debt held by the public rises from 99 percent in 2024 to 122 percent in 2034, surpassing its historical peak. Then it continues to rise,” the CBO director, Phillip L. Swagel, said in a statement summarizing the update.

Swagel said the deficits this year and those projected over the next decade “are large by historical standards.” He said the growth in spending is driven by interest costs and “greater spending on programs that benefit older people, including Medicare and Social Security. Spending on those benefits rises because of the aging of the population and growth in federal health care costs per beneficiary.”

The longer-term projections are not that dependable because they rely a lot on assumptions about economic growth, inflation, interest rates, and unemployment rates. But the spending numbers are reliable. They include: “A $145 billion increase in projected outlays for student loans stems mostly from revisions that the Administration made to the estimated subsidy costs of previously issued loans and from the Administration’s proposed rule to reduce many borrowers’ balances on student loans.” Some of that is spending that Congress arguably didn’t even intend to approve, but that Biden is doing by executive action (Biden claims a law authorized the loan forgiveness, but the last time Biden made such a claim, the Supreme Court said it was not justified).

The news prompted scattered expressions of concern from some members of Congress. “This is a bipartisan effort brought about by D.C.'s irresponsible habit of governing by spending,” Rep. Nancy Mace, a Republican of South Carolina, said in a social media post. 

Senator Mike Braun, a Republican of Indiana, said, “I wrote a balanced budget. It can be done! Just need some backbone in Congress to stop the spending.”

As the chart shows, revenues as a percent of GDP are running roughly in line with, or slightly above, average, but spending is running way above average. That could help to explain some of the inflation.

The Paul Ryans, George Wills, Pete Petersons, and Ross Perots of the world have been warning about these deficits and debt problems for so long that people’s eyes glaze over and start to wonder whether it’s really a problem. The politics of it are that no one wants to “cut” or be accused of cutting popular programs such as Social Security or Medicare to achieve the abstract accounting achievement of a balanced budget. Bill Clinton and Newt Gingrich got a balanced budget from 1998 to 2001 and it wasn’t quite enough to get Al Gore elected president in 2000. 

If Trump can make a case that the deficit is hurting ordinary Americans by fueling inflation, or that the spending is corrupt because Biden is using it to buy votes by directing it at politically favored crony constituencies (“Green” energy investors, student loan recipients who work for activist left-wing nonprofits), he might be able to get some traction on the issue. Or he might be able to use it to depict Biden as the real authoritarian: Okay, Crooked Joe Biden says democracy is on the ballot? Biden is the same guy who just added $145 billion to the deficit without getting permission from Congress, and created a more expensive government in Washington than we’ve had in generations.

Beyond the politics, the deficit and debt in non-crisis periods impose some constraints on the ability of politicians to react in the case of a new crisis. Suppose Iran or China attacks and we wind up in a war. Or suppose there’s another financial crisis, unemployment soars, and tax revenue plummets while demand for food stamps, Medicaid, and unemployment benefits soar. If there’s a $2 trillion deficit amid relative peace (okay, not in Israel or Ukraine, but still) and prosperity (okay, it may not feel like prosperity, but the reported unemployment rate is low), imagine what the federal budget gap will look like in a war or a recession. And what happens if and when those lending money to the government eventually demand even higher interest rates in return for the risk of a default or inflation? The smart move would be to narrow the deficit now and reduce the longer-term dangers. It’d require a level of political leadership and courage that is rare.

Trump’s Iron Dome: Speaking in Racine, Wisconsin, this afternoon, President Trump made his usual attacks on President Biden for illegal immigration and for inflation, and then added some new language on missile defense.