Congress is speeding toward a budget plan that, in the name of cutting taxes, lets the government collect $ 1.5 trillion less revenue for the next 10 years.
One big problem: The government needs more revenue as it is — a lot more. The biggest reason is as simple as it is inevitable: Millions more Americans retire each year to go on Social Security and Medicare.
In January, the Congressional Budget Office projected a 2018 budget deficit of $ 487 billion, rising to triple that size by 2027. The cost of benefits for aging baby boomers propel those rising deficits.
Already, Social Security and Medicare comprise about 40 percent of federal spending and 8 percent of the economy. The only way for those numbers to go is up.
In 2017, 45 million Americans receive Social Security retirement checks. By 2027 — the end of the 10-year period in which the budget would take in $ 1.5 trillion less — 60 million will receive them, the system’s trustees project.
That rapid growth will continue into the following decade, when the last boomers retire. By 2033, 77 million Americans will be eligible for Social Security.
Because life expectancy keeps rising, a growing share of them will be over 85, the age group requiring the costliest health services under Medicare and nursing home care under Medicaid. And because those boomers had fewer children than their parents, the number of tax-paying workers supporting each retiree will drop from 2.8 to 2.1.
“Federal spending and taxes will have to grow significantly,” writes Paul Van de Water, an analyst at the Center on Budget and Policy Priorities. “This is not a statement of political values. It’s a reflection of basic realities.”
Other priorities require more federal money, too. President Donald Trump, many Republicans and some Democrats say the Pentagon needs more money to keep up with global threats.
The president, many Democrats and some Republicans insist America’s decaying infrastructure needs an upgrade. Those priorities involve long-settled federal commitments, not new programs.
“If we want to maintain traditional American values,” says former Treasury Secretary Larry Summers, “government will need to be significantly larger.”
The Trump administration, predicting tax cuts will set off an economic boom, dismisses the budget’s projected $ 1.5 trillion deficit increase as overly cautious accounting. Treasury Secretary Steven Mnuchin claims increased growth will create so much new tax revenue that it will reduce deficits and help pay down the nation’s $ 20 trillion debt.
“It’s going to be all growth,” Trump told a Fox interviewer last week. “That growth can be staggering.”
Yet mainstream economists in both parties, citing evidence of recent decades, say growth won’t recoup all the lost revenue.
Greg Mankiw of Harvard, a top economic advisor to President George W. Bush, once described those who say tax cuts will pay for themselves and more through growth as “charlatans and cranks.” Glenn Hubbard of Columbia, another top Bush advisor, estimates that individual tax rate cuts might generate enough to cover 30 percent of lost revenue, corporate cuts around 50 percent.
If so, GOP tax and budget plans would require the government — already projected to borrow another $ 10 trillion over the next 10 years — to borrow even more as boomers draw their checks. If the economics profession proves more accurate than Trump, the national debt will grow higher as the economy grows, not lower.
One option, of course, is for the government to reduce its obligations by cutting Social Security and Medicare benefits. But Trump, appealing to his financially squeezed working class supporters, has ruled that out.
The Senate last week voted to let tax cuts create higher deficits. If the House goes along, the GOP tax-and-budget framework will rely on highly speculative revenue projections to finance spending obligations that will keep growing as a matter of demographic certainty.
“This is wishful thinking replacing responsible budgeting,” says Maya MacGuineas, who directs the nonpartisan Committee for a Responsible Federal Budget. “It’s going to end us up with a mountain of debt.”