The Congressional Budget Office’s long term budget outlook is a curious document. On one hand, a 30-year fiscal forecast will almost certainly be wrong. But on the other, it provides a rough—but important—framework for thinking about today’s policy choices.
It is worth considering CBO’s latest fiscal forecast, just out today, as you think about the campaign promises of Hillary Clinton and Donald Trump. In that context, Clinton’s agenda is merely irresponsible. Trump’s is fiscal madness.
CBO’s bottom line: Under current policy, annual budget deficits will rise from 2.9 percent of Gross Domestic Product this year to an average of 3.9 percent over the next decade, 6.2 percent in the decade 2027-2036, and 8.1 percent from 2037-2046. The ratio of debt to GDP, an important indicator of the government’s ability to finance its obligations, will nearly double over those three decades, from 75 percent today to 141 percent in 2046. That debt burden would dwarf any in U.S. history, including the World War II period.
Because of that burgeoning debt and rising interest rates, CBO projects the government’s borrowing costs will increase nearly four-fold, from 1.4 percent of GDP today to 5.1 percent. That means the government will be spending as much on interest in 2046 as on the entire discretionary budget, including defense.
Aging Baby Boomers
How will this happen? Due largely to rising health care costs and the aging of the Baby Boomers, spending for programs such as Medicare, Medicaid, and Social Security will increase sharply, while tax revenues will rise only modestly. Because these trends are driven mostly by demographics, and because so much government policy is on autopilot (as my Tax Policy Center colleague Gene Steuerle often reminds us), Congress has no easy way to change this trajectory.
With this grim background, let’s think about the presidential race.
Clinton, you’ll recall, has proposed relatively modest new programs to address kitchen table issues such as health, education, and caring for aging parents, which she’d pay for by raising taxes on high-income households.
She’d make the deficit slightly worse by offering what seemingly is a five point plan for every problem. But while she wouldn't do much more damage, she proposes no steps to improve the long-run fiscal situation, though the burden of the growing debt would surely haunt her presidency. (The Democratic platform is likely to endorse more ambitious initiatives. But it is a party platform, which means it will be largely forgotten by nearly everyone—including Clinton--soon after the Democrats decamp from Philadelphia in a couple of weeks.
Trump, by contrast, has proposed a fiscal plan that TPC estimates would reduce federal revenues by $9.5 trillion over the next 10 years, and by $15 trillion in the decade after that. He’s proposing massive tax cuts for all, though the biggest beneficiaries would be high-income households. He’d cut taxes by an average of more than $5,000 in 2017 and more than $6,500 in 2025.
Greece, with worse weather
So far, he has identified no major spending reductions to offset these huge tax cuts, other than an unspecified cap on Medicaid spending. Indeed, he has vowed to maintain Social Security and Medicare benefits and probably would increase spending on defense and border security.
The long-run fiscal consequences of this? In the period 2026 to 2037, TPC estimates Trump would increase the debt by $34 trillion, or 80 percent of GDP. That would be on top of the already unsustainable debt levels projected by CBO. The U.S. would become Greece, but with worse weather. And with much bigger consequences for the world economy.
That then, appears to be our choice. A candidate who, I suppose to our great relief, won’t make things much worse and one who would increase the federal debt to levels never-before imagined.
