Federal revenues project higher for the next 10 years than the average for the past half-century. So how, with record revenues, can the forecasted debt-to-GDP ratio soon surpass any in the history of the United States?
On Wednesday, the Congressional Budget Office released its “Budget and Economic Outlook: 2023 to 2033,” which estimates future revenues, outlays, and deficits based on current spending and tax law. It paints a grim picture.
Federal revenues averaged 17.4 percent over the past 50 years. They hit 19.6 percent in 2022, the most recent completed fiscal year. The treasury takes in a great deal more than in past years. Despite receipts running historically high, the $1.4 trillion deficit eclipsed all but four previous shortfalls.
When both taxes and deficits run significantly higher than the norm, it usually means one thing: spending runs dramatically higher than the norm. That happened in 2022. While outlays averaged 21 percent of GDP over the last five decades, federal allocations reached almost 25 percent of GDP in 2022. By gobbling up a quarter of the economy for its purposes, the federal government spends way more than we did during a five-decade period of abnormally high outlays.
This pattern of relatively high tax intake but even higher expropriations continues for the next decade, according to the CBO. In 2033, for instance, the CBO pegs revenues at $7.1 trillion but expenditures at $9.8 trillion. That projected deficit, doubling the most recent shortfall to $2.7 trillion, amounts to 6.9 percent of GDP, which the CBO describes as “a level exceeded only five times since 1946.”
Higher deficits, along with rising interest rates and a greater chunk needed to service existing obligations, mean a larger debt. The deeper the United States goes into debt, the greater the likelihood that the United States defaults and damages its credit.
“Debt held by the public is projected to rise in relation to the size of the economy each year, reaching 118 percent of GDP by 2033—which would be the highest level ever recorded,” the report informs. “Debt would continue to grow beyond 2033 if current laws generally remained unchanged.”
Of course, this CBO prophecy depends on lawmakers maintaining the status quo. The good news is that President Joe Biden wants to do anything but that. The bad news is that, facing a debt approaching $32 trillion, he thinks the government should spend more, not less.
In the State of the Union earlier this month, a man presiding over trillion-dollar deficits called for Congress to “provid[e] access to preschool for three and four years old,” “provide access to two years of community college,” “get more families access to affordable, quality housing,” “help veterans to afford their rent,” “fund [COVID treatments and vaccines] and keep America safe,” “give public school teachers a raise,” and spend “more resources to reduce violent crime and gun crime, more community intervention programs, more investments in housing, education, and job training.”
Amid these and many other spending proposals in a speech that lasted over an hour, the president did not once identify a federal program to cut or eliminate.
Remarkably, Biden warns that America faces an economic catastrophe if legislators do not allow the federal government to go further into debt. He told the National Association of Counties on Tuesday that “some in Congress are putting that progress at risk by threatening to have America default on its debt, which would be catastrophic for counties and the country.” A Biden aide calls negotiations for spending cuts in exchange for an increase in the debt ceiling a “nonstarter.”
But, as the CBO’s numbers show, a massive amount of money pours into the treasury on a constant basis. This year, for instance, the CBO expects $4.8 trillion in federal revenues. That’s 10 times more than the amount the federal government spent on interest payments on the debt last year. Without raising the debt limit, the government can pay for interest payments, the defense budget, Social Security, and Medicare with trillions to spare. Not raising the debt limit, it is true, would necessarily force Congress to prioritize some spending over other spending. But why prioritizing would mean defaulting on debt payments, instead of, say, curbing money to Ukraine, the Legal Services Corporation, the Corporation for Public Broadcasting, and a hundred other programs remains unclear.
We do not default on our payments and destroy our credit if Congress does not raise the debt limit. We default on our payments and destroy our credit if Congress keeps raising the debt limit.
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