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Credible research and impartial information are critical to fostering fiscal responsibility. The Institute to Reduce Spending engages in and promotes rigorous academic research and scholarship on the subject of federal spending and budgeting. We seek to create a national, nonpartisan dialogue regarding spending reform by presenting information in a publicly accessible manner.

Raising the Debt Limit Is Just a Temporary Fix


Again and again on the campaign trail, President Donald Trump pledged that he would “drain the swamp”. He used it as a tagline alluding to how he would fix many of the problems synonymous with the federal government. Unfortunately, there are recent signals that newly appointed Treasury Secretary Steven Mnuchin is at risk of following the same old Washington norms—at least when it comes to the debt limit.


In an interview with Axios cofounder Mike Allen, Secretary Mnuchin said, “Everybody understands we need to raise the debt limit … and that the full faith and credit of the United States is the most important thing.” This line of thought is nothing new – in fact, former Treasury Secretary Jack Lew had a similar, if not identical, solution to the debt limit debate.


Secretary Mnuchin is correct that the faith and credit of the nation is important, and like his predecessor before him, he is not wrong to criticize the process. No one would suggest simply defaulting on payments, but continuing to kick the can down the road is also irresponsible. A quick fix is not a solution. There are credible debt limit alternatives, that are both meaningful and politically achievable solutions, if the experience of other countries is any guide.


Ignoring this debate and just constantly raising the debt ceiling – on average, we do so more than once per year – is the epitome of procrastination and will not solve our nation’s spending problems. The United States cannot continue on this path of spending without scrutiny, and with the $20 trillion debt lurking just around the corner, now is a better time than ever for reform.

CBO Releases 2017 Long-Term Budget Outlook


New year, same fiscal warnings. The Congressional Budget Office has released their annual long-term budget outlook for 2017 and, likely to nobody’s surprise, the results are eerily similar to their previous predictions.


In the new report, CBO estimates that the federal debt will reach 150% of GDP by 2047, nearly doubling the 77% of GDP that it is at currently. The main driver behind this massive increase is the growth of the deficit. With the growth of retirees trending upward, the outlays for Social Security and Medicare are projected to vastly outpace the government’s revenues. This—in combination with the growing costs of healthcare—will only make the problem worse for the U.S economy.


Though these projections are similar to the numbers from the July 2016 report, their estimates this year have a slightly more dismal outlook. They now project debt in 2046, measured as a share of GDP, to be 5 percentage points higher than they did in last year’s estimate.


In addition, CBO predicts that the growth of federal debt will reduce federal savings and increase the cost of interest on the debt—forcing more pressure on other parts of the budget. CBO points to two potential problems with accumulating high debt. First, they predict it will lead to a decreased ability to respond to problems both domestically and internationally. Additionally, it may lead to a greater chance of a fiscal crisis because investors will be unwilling to finance federal borrowing.


There is uncertainty with these projections, of course. They are directly related to the labor force participation rate, growth of productivity, interest rates on the debt, and costs of mandatory spending. Any large changes to these parts of the economy will result in different outlooks—which, depending on the circumstances, could be a good or bad thing.


In order for the government to get spending under control, there will have to be massive changes to political habits. If lawmakers aimed to decrease the debt to equal 40% of GDP by 2047—which is the 50-year average—they would have to cut non-interest spending by 15%. Even more frightening, if politicians want to keep debt at the current levels of 77% of GDP, they would still have to cut by 9%, or $1,100 per person. For a federal government that continues to grow year after year, this is a tall order.


Currently, the United States is headed down a road of fiscal insolvency. If changes aren’t made, the likelihood of an economic crisis grows exponentially. CBO has been warning Congress for years to take spending cuts seriously and only a few Members have taken action toward change. It is going to take some serious leadership to attempt to shrink the budget, but as CBO warns again, it must be done before we face severe problems not too far down the road.

Failing to Address the Debt is Not Sustainable


President Trump has a golden opportunity to appeal to the fiscal hawks who were wary about how he would address the $20 trillion national debt. With large cuts to the EPA, Dept. of State, and Dept. of Labor—among other things—things look optimistic for fiscal conservatives. However, the largest portion of the budget, mandatory spending, remains untouched. Mandatory spending accounts for nearly two-thirds of the entire budget, so drastic cuts to other departments are encouraging but ultimately miss the root of the debt problem.


Don’t get us wrong: It’s great that President Trump is recommending these cuts as well as reorganizing agencies within the executive branch to increase efficiency, but refusing to even discuss reforms to Social Security, Medicaid, and Medicare means turning a blind eye to the biggest part of the iceberg that sits just under the surface. Even more troubling, increasing military spending goes to offset the other cuts, leaving taxpayers in the same position as before. After you add in expected tax cuts, the case for spending reform continues to grow. Even ignoring the possibility of economic unrest or fiscal crises down the road, a debt so large comes with real concerns today.


Just last week the Federal Reserve decided to raise interest rates, which is a reminder that holding on to a massive debt and large interest payments is a real risk that could be closer than many like to think. The Congressional Budget Office estimates that the federal government’s net interest costs will go from 1.4 percent of GDP in 2016 to 3.0 percent of GDP in 2026 and to 5.8 percent of GDP by 2046—and if interest rates continue to rise, so could this percentage.


This is extremely detrimental to our fiscal security and becomes an even bigger problem when paired with ignoring mandatory spending. With another debt limit hike coming soon, Representatives should look for meaningful ways to restrain government spending. It is imperative that the spending problem in Washington gets addressed, and small cuts are worth celebrating but will not fix the problem. With a united government, there is a real opportunity for meaningful spending reform – which Representatives ought to seek now more than ever, if we want to ensure America’s continued prosperity.

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