The federal government continues to pile on massive long-term debt. Some is the cost of fighting the pandemic. Some is the result of fiscal intemperance. And yes, some is the consequence of gridlock on entitlement reform.
The end product is the same. We’re digging deeper and deeper fiscal holes for future generations.
The latest evidence of this comes from the Congressional Budget Office’s recent predictions that the 2020 budget deficit will exceed $3 trillion for the first time in the nation’s history. But it’s the trend behind that prediction that should cause consternation.
Just prior to the start of the Great Recession in 2007, the national debt was 35% of GDP. This year, federal debt is expected to skyrocket to 98% of GDP, up from 79% at the end of last year, and will surpass 100% next year. By the end of the decade, federal debt could be as much as $41 trillion — more than twice the size of the current economy.
Even as we struggle to save the economy from the ravages of COVID-19, we also should pay attention to this steady escalation of the government’s debt obligations. Debt sucks revenue from future investments and encourages additional deficit financing to deal with immediate needs without much attention to the larger and larger bills being created for future generations. Think of it as juggling credit card payments by using one card to pay down another.
We admit it is hard to think about the future when the COVID-19 crisis is overwhelming state, local and national economies. However, this debt crisis is as insidious and stealth as the pandemic itself, and will be shaping our lives well after COVID-19 is brought under control.
Even if economic growth rebounds after the pandemic, annual budget deficits as a percentage of GDP still will be at unsustainable levels. If there has been a saving grace, it is that interest rates have been low. When interest rates rise — and they will — so will these bills. And, at the same, the costs of entitlement programs, such as Social Security and Medicare, which have been kicked down the road for decades, will pose additional financing challenges.
Medicare is a prime example of this financing conundrum. The CBO estimates that Medicare’s Hospital Insurance Trust Fund will not have funds to cover all benefit costs beginning in 2024 — two years sooner than last year’s projected depletion date of 2026. The reasons are COVID-19\u2032s hit on payroll tax revenue, increased Medicare spending and reduced revenues through tax cuts.
The economy may still need help to keep businesses and jobs from sinking deeper into the abyss during the pandemic. However, we cannot forget that today’s costs have due dates, nor underestimate the structural threats to our fiscal future.
