Let's start with some good news: That monster deficit we faced back in 2009 — all $1.4 trillion of it — has been slashed big time over the past several years. The annual budget shortfall is still $483 billion, but stacked up against the $18 trillion U.S. economy, this deficit is in line with the average-sized deficit going back 50 years.
As usual, when the news is good, both Republicans and Democrats bicker over who gets credit for it. Democrats, led by President Obama, say the deficit is down because they've spurred the economy to grow again, generating tax revenue. Republicans counter that the deficit is down because they've held the line on spending. There's probably some truth in both of these positions.
But of course, there's bad news on the deficit that neither party seems ready to acknowledge, let alone claim credit for. That $483 billion deficit? That's about as good as it's going to get. It's like that first steep drop on a roller coaster. The deficit has fallen, and fallen fast — but it's about to head right back up again. The nonpartisan Congressional Budget Office says the deficit will bottom out in 2017 — just as Obama leaves office — and then return to trillion-dollar territory by 2025. The national debt — in nominal terms — will jump to $21 trillion, the CBO adds.
What's driving the forecasted spike in future deficits? It's the stuff no one in Washington has the guts to touch: entitlements. In 2014, the big three — Medicare, Medicaid, and Social Security — gobbled up 57 percent of the federal budget. And 10,000 baby boomers (born between 1946 and 1964) are retiring every single day, and tapping into these benefits. Life expectancies are rising as well, so there are more people retiring than dying. (Not like we should be rooting for death! But from a budgetary perspective, if more people get added to entitlement rosters than are removed from them, the costs balloon fast.) The result is that entitlement spending — already enormous — is about to explode.
Liberals like to blame defense spending for our red ink — but, as this chart provided by the Council on Foreign Relations shows, military spending, as a percentage of the economy, is actually quite low, and in line with where it has been for decades. Entitlements are the real source of our deficit problem.
To make things worse, as the economy improves, interest rates will move up — meaning it will cost us more to pay back our debts. Interest on the debt — $271 billion last year, even with record-low interest rates — will jump. The next president had better buckle his (or her) seat belt, because the next decade is going to be rough. Nasty spending cuts, higher taxes: Soaking up all that red ink is going to be painful — and you and I are going to pay the price.
There are two ways of avoiding this mess. One is quite painful: We can cut entitlements by raising eligibility ages and/or slashing benefits. Everybody sacrifices. But what lawmaker is going to make grandma — or you — give something up? That's not how politicians roll; it's certainly not how they get re-elected.
The other option is to grow the economy at a rate that exceeds the growth of entitlements — but history suggests this is unlikely. We're simply not growing fast enough to outpace the deteriorating demographics. When Social Security began, for example, there were 42 workers for every retiree. As of 2012 there were 2.8, and by 2035 there will be 1.9, the CBO projects.
Neither the president nor GOP leaders in Congress have uttered a word about tackling this mother-of-all-problems lately. In his State of the Union, there wasn't a peep from Obama, and his aides talk (off the record as always) about "ending mindless austerity." But there hasn't been a word from John Boehner or Mitch McConnell, either. Their priorities are a pipeline, overturning healthcare, and — talk about fiscal irresponsibility — more tax breaks for the wealthy. Obama's a big-spending liberal, we get it. But in a way, Republicans are even worse: They preach austerity while pushing deficit-busting tax breaks for their rich friends — while ignoring the coming storm.