Is the U.S. Losing the War on Deficit Spending?
Lawmakers in the U.S. House recently debated a budget bill that would cut hundreds of billions of dollars from the deficit, pleading with their colleagues to think about future generations. However, this isn’t the first time such discussions have taken place. Nearly 30 years ago, on Aug. 5, 1993, Rep. Anthony Beilenson of California and Rep. Jim Bunning of Kentucky implored their colleagues to make decisions that would prevent increasing amounts of debt on future generations. At that time, President Bill Clinton’s first big budget bill raised the debt ceiling to $4.9 trillion. Today, the debt is more than six times greater, standing around $32 trillion.
The budget deal that recently passed Congress, which will cut $1.5 trillion in federal spending over the next 11 years in exchange for suspending the debt ceiling through the end of President Joe Biden’s first term, signifies that the U.S. may be reaching a bipartisan conclusion that long-term debt and deficits are not the impediment to economic growth long feared. This agreement is a massive, if unplanned, fiscal experiment.
According to Congress’ nonpartisan bookkeepers, the deal would not change the trajectory of the national debt. Instead of rising to 119% of the size of the economy by 2033, the debt-to-GDP percentage would now rise to only 115% and to $50.1 trillion. This lack of significant impact on the debt-to-GDP ratio, coupled with Congress’ eagerness to spend even more, suggests that the red ink is winning.
Congress’ recent attitude toward deficits is a significant turnabout from a decade ago when budget experts craved a “grand bargain,” in which Republicans would trade the expiring tax cuts passed by George W. Bush for cuts to entitlement programs like Social Security and Medicare. However, budget dealmaking was limited to biennial mini-bargains, with the most ambitious attempting to simply pay for extra spending allowed by busting the budget caps set in the 2011 deal.
The situation changed when Donald Trump-led Republicans prioritized tax cuts as a higher priority over deficits, pushing through a massive set of individual and business tax cuts Republicans had long dreamed of in 2017. The cuts were projected to add about $2 trillion to the debt. In 2021, coming into office during the COVID-19 pandemic, Biden passed his $1.8 trillion American Rescue Plan, the first in a trio of major bills including an infrastructure bill and the Inflation Reduction Act.
Doug Holtz-Eakin, president of the conservative American Action Forum and a former CBO director, said the new debt deal was never expected to be a big deficit-fighting one, with Biden successfully baiting the GOP into taking entitlement cuts off the table and the GOP insisting no taxes could be raised nor defense spending cut. One ratings firm, Fitch Ratings, kept the U.S. debt on watch even after the deal, signaling it could still downgrade it from the current pristine status soon. Fitch cited brinkmanship and that “failure to tackle fiscal challenges from growing mandatory spending.”
