This week on Facing the Future, we examined why deficits and debt are entering uncharted territory as lawmakers face a number of key fiscal deadlines in 2025. My guests were Rachel Snyderman, Managing Director of the Economic Policy Program at the Bipartisan Policy Center (BPC) and Concord Coalition National Field Director Phil Smith.
Snyderman began by laying out an array of 2025 fiscal deadlines. “First and foremost,” she said, “on January 2nd the Federal debt limit is going to be reinstated. The debt limit was suspended in June of 2023 in the Fiscal Responsibility Act. And then there’s another bookend at the end of the calendar year when several provisions in the 2017 Tax Cuts and Jobs Act (TCJA) will expire affecting individuals, small businesses, and corporations. These are the two bookends, but there are several deadlines that Congress and the next Administration are going to have to face within that, such as figuring out what to do about fiscal year 2025 appropriations, which Congress kicked down the road until after the election and that could well spill over into next year. Then, of course, they will have to tackle fiscal year 2026 appropriations.”
The BPC is noted for its analysis of when the Federal government could reach the so-called X Date, the point at which the Treasury runs out of borrowing authority and faces a default. Snyderman noted that raising the debt limit has been a contentious process in the past. “Where we really worry about this,” she said, “is what could happen if there was a threat of the United States being unable to pay our creditors in full and on time. That could create a cascading effect across not only the U.S. economy, but global financial markets. We have seen GAO reports and Treasury tabletop exercises repeatedly over the past 10 years estimating that we would really be in uncharted territory if we were to even flirt with default, let alone cross that X Date.
On the expiring provisions of the TCJA, Snyderman bluntly observed that “lawmakers have a really big math problem on their hands. They have a five trillion dollar tax bill. That is, five trillion in tax provisions are expiring at the end of next year and they need to come up with some way to deal with it. This is not a problem that will touch a very small section of the populace. This is something that has the potential to touch literally everyone who files an individual tax return and small business owners.”
Snyderman is part of a new project at the BPC examining the impact of inaction on many policies and programs if the country remains on a fiscally unsustainable path. “We’re going to be putting out a number of products over the next months that look at and explain this issue through the lens of different sectors and industries with the hope of showing that this is an interrelated intergenerational issue, but that we have time to fix it now.”
The need for urgent action was also stressed by Smith who outlines many ways in which the nation’s fiscal policy is headed into uncharted territory. He focused on annual deficits and the total national debt.
“Every year that we have an annual budget deficit it adds to our overall national debt,” Smith said. “The nonpartisan Congressional Budget Office (CBO) projects that deficits will average 6.7% of the gross domestic product (GDP) over the next 30 years, far exceeding the average that we’ve had over the past 30 years, which was about 3.8% of GDP. And by 2054, CBO projects that the deficit will reach 8.5% of GDP.”
Smith observed that in the past, “huge deficits were caused by war or severe economic disruption. So now, when you look at running deficits at 6% of GDP or higher as a routine matter, we basically have routine emergency deficits without the emergency.”
During the next couple of years, Smith noted, both interest payments on the debt and the debt itself are projected to set new records as a share of GDP. “Almost everybody agrees that the Federal budget is on an unsustainable path,” Smith said, “and I hope people will realize this dynamic was created through legislative action, and it will take legislative action to set us on a more sustainable course. The sooner actions are taken, the better our chances are for success because we’ve used up a lot of runway. We’ve known about this for a couple of decades. We still have a little bit of runway left, but the sooner we act the better.”
Hear more on Facing the Future. Concord Coalition Executive Director Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
