For immediate release: March 7, 2024
For more information: Chris Colligan — 703-517-0378 — 703-894-6222 — [email protected]
The economy is growing at a solid rate, unemployment remains low and inflation is coming down. These are all reasons to feel good about our current situation. A more complete assessment of the state of the Union, however, must include the fact that we are on a perilous fiscal path that threatens our future prosperity and standing in the world. That crucial element was missing from President Biden’s State of the Union Address.
Throughout his address, the president took credit for many positive developments under his watch and laid out an ambitious vision for the future. That’s to be expected, but his vision was constrained by blinders. At no point did Biden candidly acknowledge the mountain of debt that we must ultimately confront.
Failing to discuss this challenge will not make it go away. Nor is it reasonable to assume that an array of new commitments can be piled on with no more heavy lifting than taxing the rich. The president said his proposed minimum tax of 25 percent for billionaires would raise $500 billion over the next 10 years. Maybe so, but the projected deficit over the next 10 years are $20 trillion.
Higher taxes must, indeed, be on the table but they are needed, along with spending cuts, to dig out of the hole we are already in.
The latest Budget and Economic Outlook (2024 to 2034) from the Congressional Budget Office demonstrates how dire the situation has become:
- Annual deficits over the next 10 years average $2 trillion (5.7 percent of GDP)
- Debt held by the public reaches an historic high in 2028 (106.3 percent of GDP)
- Interest costs reach an historic high in 2025 (3.2 percent of GDP)
- Mandatory spending plus interest on the debt consumes all revenues in 2025
- Congress could eliminate discretionary spending in 2025, including defense, and still have a deficit
At the same time, a number of significant decisions affecting the path of future deficits must be made within the next few years. These include the 2025 expiration of temporary tax cuts enacted in 2017, the expiration in 2025 of enforceable discretionary spending caps enacted as part of the 2023 Fiscal Responsibility Act, the renewal of the statutory debt limit in January 2025, the projected depletion of the Medicare HI trust fund in 2031, and the projected depletion of the Social Security OASI trust fund in 2033.
These action-forcing events provide a critical opportunity for policymakers to do more than kick the can down the road once again. National leaders play a dangerous game of policy “chicken” when they defer corrective action on known challenges, hoping to address them later when it’s more politically expedient. But this “kick the can” strategy risks a slow moving cumulative disaster as unanticipated calamities (a war, a deadly pandemic, economic upheaval, or all three) pile atop a pre-existing structural deficit that must not be ignored.
There is no getting around the fact that meaningful action on fiscal sustainability will involve difficult choices and these choices will need public support to be enacted. The situation cries out for presidential leadership in informing the public about the magnitude of the fiscal problems we face and in laying out viable solutions. It is not a time to take reasonable options off the table. As the president said in closing, “Let’s remember who we are. We are the United States of America. There is nothing beyond our capacity when we act together!”
By all means we should celebrate the good news, but we must not be blind to the challenges.
