By John Ubaldi
Contributor, In Homeland Security
Congress recently fired a shot across the bow of the Pentagon. The Defense Department was warned that it better take advantage of the two-year budget boost in defense spending because lean years are coming.
The U.S. now has to grapple with a $21 trillion national debt. Budget deficits are returning to the $1 trillion annual levels.
The top Democrat on the House Armed Services Committee, Rep. Adam Smith (D-WA), warned Defense Secretary James Mattis that “While 2018 and 2019 are great, I hope you are also planning for a lean future because we are looking at a trillion-dollar deficit this year.” Smith added that the U.S. national debt is approaching $22 trillion.
Potential Cause of the National Debt
The Congressional Budget Office (CBO) attributes the growth in the budget deficit and the national debt to recently enacted tax cuts and increases in government spending signed into law by President Trump. Analysts believe the new tax package will do little to increase long-term economic growth.
Many people will use this CBO report as evidence that the recent tax reform bill and spending package that Trump signed is proof that the tax cut is the sole cause of the increase in the national debt and the growing federal budget deficit. But one has to also look back to the CBO report of January 2017 to put the new tax bill into context.
CBO Reports Real Cause of Federal Debt
In that report, released just as President Trump took office, The Congressional Budget Office projected that if current laws remained generally unchanged, budget deficits would follow an upward trajectory over the next decade. As a result, there would be a large growth in retirement and healthcare program spending, rising interest payments on the government’s debt, and only modest growth in revenue collections.
Liberals and conservatives always argue over budgetary priorities. Progressives want to slash defense spending, which accounts for about 15 percent of the federal budget.
Conservatives harp on all other so-called wasteful spending. But both parties focus solely on discretionary spending without fully addressing the real cause of the growing federal debt — non-discretionary spending on entitlement programs.
Entitlement programs, specifically Social Security (24 percent of federal spending), Medicare (17 percent) and Medicaid (9 percent) account for half of all federal spending. If you factor in rising healthcare costs and interest on the debt as noted by the CBO, these numbers represent almost 70 percent of all federal spending.
Entitlement Spending to Increase in Coming Years
In the years ahead, the combination of an aging population and rising healthcare costs will overwhelm federal spending. Entitlement programs are badly underfunded and put a strain on the federal budget.
The only option to solve this budget problem is a massive tax increase or a massive reduction in benefits. Either way, that hardly portends a rosy future.
Republicans and Democrats always speak of reducing federal spending, but they never provide a comprehensive strategy of overhauling the federal budget. Instead, they embrace more federal spending in the belief that this will spur economic growth.
The CBO noted that revenue will decline this year; what is not mentioned is that spending will increase fourfold. Currently, the federal government will run about an $800 billion deficit because Washington will spend almost $4.1 trillion after taking in around $3.3 trillion.
Congress Can’t Control Its Spending
The real culprit is Washington’s voracious spending habits. Unfortunately, reforming federal spending always falls on deaf ears by both Republicans and Democrats. Neither party wants to seriously tackle the real threat to U.S. national security — the enormous national debt.
Critics in both parties often use the CBO reports to fit their own political narrative. But the CBO can only analyze the numbers it is given. It cannot factor in how new tax reform laws will affect the broader economy, especially relating to corporations and small businesses.
Michael D. Tanner, a Senior Fellow at the CATO Institute, warns: “Over the long term, the tax cuts will probably mean larger deficits. CBO estimates that forgone tax revenue will add about $1.85 trillion to the debt over a decade. Not good. On the other hand, increased spending will add around $12 trillion to the debt over ten years. Spending is expected to grow by 70 percent, meaning that even without the tax cuts, we would be drowning in red ink.”
Previous tax cuts had an enormously positive impact on GDP growth. Those tax cuts included the Kennedy tax reform legislation of 1964, the Reagan tax cuts of 1981 and the subsequent tax reform of 1986.
National Budget Was Balanced in Mid-1990s
Both Kennedy and Reagan were never able to rein in spending, so the national debt increased. The only time the budget was balanced was in the 1990s during the Clinton administration because political constraints by Republicans controlling Congress and the Democrats controlling the presidency prevented greater spending.
Even with this political alignment, Washington failed to control entitlements spending.
The CBO didn’t calculate the anemic growth rate of the Obama presidency, due largely to the Great Recession that severely limited economic growth and added almost $10 trillion to the national debt.
The Great Recession resulted in the U.S. economy growing at its lowest rate since 1929, the start of the Great Depression. Obama has the dubious distinction of being the first modern president to never have GDP growth above 3 percent in a given year.
How to Decrease the National Debt
Even the CEO of JP Morgan Chase, Jamie Dimon, cited various failures of U.S. public policy in a letter to his shareholders. Those failures included the non-competitive nature of the U.S. tax code, which forces companies to stash profits overseas.
Excessive regulations especially hamper new businesses; U.S. entrepreneurial startups are at a 30-year low. The progressive think tank, Brookings Institute, noted the decline of business dynamism in the U.S. in a May 2014 article.
US Needs Additional Revenue Coupled with Spending Reform
The simplest way to reduce the national debt is to increase revenue and grow the U.S. economy beyond the anemic 2.1 percent growth of the past administration. Simultaneously, we need to overhaul the federal budget with a 21st century business reform.
Without these reforms, U.S. national security will be threatened far more than from whatever a foreign power might do.
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