Remember the federal debt and deficits? You don’t hear much about either one these days, but they haven’t gone away.
In fact, after several years of narrower spending gaps, both deficits and debt are heading in the wrong direction again. As noted here in January, the Congressional Budget Office issued a warning that in 2016, for the first time in seven years, the U.S. budget deficit as a percentage of gross domestic product would rise.
In its 2016 Long-Term Budget Outlook, released last month, the CBO reiterated its projection that by the end of fiscal 2016 in September, federal debt held by the public will reach an estimated 76 percent of GDP—versus 74 percent one year ago—and after 10 years will reach 86 percent of GDP.
And if it stays on the same path, U.S. debt as a percentage of GDP could top 140 percent in 30 years. By contrast, before the Great Recession, it was around 35 percent.
As for the federal deficit, the Office of Management and Budget now says it will finish this fiscal year around $600 billion—up more than 35 percent from roughly $438 billion in 2015, and $66 billion larger than estimated only three months earlier.
At $600 billion, it still would be less than half of the $1.3 trillion deficit in 2010. But the return to larger gaps is nothing to cheer.
Martin Feldstein, who headed President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984, wrote recently that the recent budget releases are “a grim reminder of the perilous state of fiscal policy in the United States.”
But others disagree. Jared Bernstein, a former chief economist to Vice President Joe Biden, argues that “smart investments” such as infrastructure spending can be good for the economy.
Mr. Bernstein makes a good point. The problem is, much of what’s driving up the federal debt and deficits has little to do with long-term investments in the economy.
Until Congress and the president address the structural factors that cloud the nation’s fiscal outlook, we’re merely postponing the price that must be paid.
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