Fiscal discipline, says Democratic congressman Jim Cooper, is as “out of fashion as bell-bottoms.” The deficit hawk from Tennessee is right — and that’s a shame.
Our federal budget deficit will be about $900 billion, or approximately 4.2 percent of gross domestic product, this fiscal year. Even with its rosy growth and spending scenarios, the Trump administration itself is now projecting a $1.1 trillion deficit in 2020 and trillion-dollar deficits for the following three years.
Big deficits aren’t always a bad thing, of course. In bad times, spending in excess of revenues helps stabilize and stimulate a shaky economy. But these are good economic times — and yet the deficits are growing faster than the economy, which means the nation’s debt is increasing at a faster rate than its wealth.
The Congressional Budget Office projects that deficits will average 4.4 percent of gross domestic product in the decade ahead. Even the Trump administration’s oh-so-optimistic forecasts don’t see sustained economic growth above 3 percent a year.
“Until recently, deficits higher than 4 percent of Gross Domestic Product have been unprecedented in times of low unemployment,” notes the Congressional Budget Office. “In the past 50 fiscal years, the unemployment rate has been below 6 percent in 27 years. During those years, the deficit averaged 1.5 percent of GDP. In the 12 years that the unemployment rate was below 5 percent, deficits averaged 0.7 percent of GDP.” The unemployment rate, which was under 5 percent for all 2017, has been at 4 percent or less for the last 12 months.
Against the backdrop of the exploding federal deficit, the Trump administration last week offered a budget plan that proposes substantial cuts in domestic programs, including Medicare. Given that a Republican-controlled Congress showed no appetite for cuts of that sort in previous years, there is little chance that will happen in today’s split Congress.
Nor should efforts to address the deficit come solely or even principally on the spending side. Absent tax and spending changes made since 2015, the deficit would be at about $360 billion this fiscal year, or a very manageable 1.7 percent of gross domestic product, says the bipartisan Committee for a Responsible Federal Budget.
The single biggest deficit accelerator in that period, accounting for $230 billion in new yearly red ink, is the Republican tax cut of 2017. (Recall that Republicans promised, ridiculously, that it would pay for itself.) After that, it’s the Budget Act of 2018, also on Trump’s watch, which added another $190 billion a year. That act saw Congress boost defense spending, a conservative priority, and hike domestic spending, a liberal priority.
Short-range comparisons put the federal government’s worsening fiscal position in sharp focus. According to US Treasury Department figures, the federal fiscal shortfall increased 77 percent in the first four months of this fiscal year when compared with the same four-month period in fiscal 2018.
Now, despite the increasing debt, interest rates have remained low. That has led some leading Democratic economic thinkers to conclude that there’s more tolerance for high federal debt levels than was previously thought.
Perhaps. Still, Democrats, who have been the party of relative fiscal discipline for the last 40 years, shouldn’t abandon that role, as their presidential candidates show some signs of doing. They needn’t prioritize deficit-reduction to the exclusion of political priorities like more affordable health care, child care, and college, and improved infrastructure. But they should give voters a rough idea of how they will pay for their new programmatic spending and commit to putting the federal budget on a path toward more sustainable deficits. Only by doing so can they contrast their approach to the deficit-devil-may-care approach of Trump and his team.
When candidates level with them, voters often respond. With the right balance of policies, politicians can be truth-tellers without being doomsayers. That’s the challenge for those who aspire to office in 2020.