The White House Office of Management and Budget (OMB) predicts the federal deficit will hit $890 billion by the end of 2018 and exceed $1 trillion by 2019.
“An American Budget: Mid-session Review,” published by OMB in July, projects the federal budget deficit will grow by about $420 billion per year, crossing the $1 trillion mark in 2019.
OMB expects the deficit to peak in 2020 and begin declining between 2021 and 2023.
‘A Second-Order Concern’
Gary Galles a professor of economics at Pepperdine University and a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says the real problem is the fundamental inefficiency of nearly all government spending.
“I would begin by going back to basics: budget deficits are a second-order concern,” Galles said. “The big concern is that the only spending by government that Americans’ ‘general welfare’ can be advanced by is spending that provides benefits that exceed their costs, where they spend our resources better for us than we would ourselves. But since those in government know us less well and care about us less than we do ourselves, their ability to benefit us by spending our money for us is very small.”
Calls Forecast Unsurprising
Romina Boccia, a research fellow in federal budgetary affairs and deputy director of the Roe Institute for Economic Policy Studies at the Heritage Foundation, says no one should be surprised by the prediction of a trillion-dollar federal deficit.
“For a few years now, we knew the deficit would reach trillion-dollar levels,” Boccia said. “That has to do with the spending growth in entitlement programs. That has to do with the aging of U.S. society, especially the retirement of the Baby Boomers. They are now retiring at a rate of more than 10,000 people each day. As they become eligible for Social Security and Medicare, and the fact that the Republicans were unable to repeal Obamacare, those are the three primary drivers of the deficit.”
Spending More and More
Boccia says federal disaster aid and the Consolidated Appropriations Act of 2018, signed into law by President Donald Trump in March of this year, have contributed to the budget gap.
“In regards to discretionary spending, when President Trump made a budget deal with Congress and then passed into law a massive omnibus spending bill that increased discretionary spending by $300 billion over two years in 2018 and 2019, that is absolutely having a major impact on the short-term deficit. If you think back not too long ago, there were a multitude of emergency-spending supplemental bills to react to various natural disasters that occurred, including the hurricanes in Florida and Texas. Congress passed massive spending packages to address those.”
Boccia says Congress is acting irresponsibly when it comes to the national government’s finances.
“They haven’t cut any spending, they haven’t reformed any of the entitlement programs, they did not repeal Obamacare, as they had promised. They just keep adding to the federal budget and keep adding on the spending side.”
Cutting the Spending Knot
If the government stuck to its core functions, the deficits and high taxes would be eliminated, Galles says.
“Most of what government does makes us worse off, Galles said. “If government continues to grow, tax rates will have to rise. If we limited what government spends to what it does well enough for us to want it to, the underlying cause of the most pressing issues would be addressed, and the government would be much, much smaller. We would not have the deficit and debt issues we face now. Only after that issue is resolved does the question of paying for worthwhile spending by taxes versus deficits—future taxes—come up, with the main issue being when the benefits will be received.”
Galles says few people realize cutting taxes without reducing spending necessarily results in future tax hikes.
“It is worth remembering that whenever government spends more, it is promising to pay for it, so a tax cut today that causes a deficit is really not a tax cut to that extent; it is only a tax deferral that will worsen future tax burdens,” Galles said. “Those future burdens need to be recognized and incorporated in our understanding, though they are routinely ignored.”
Boccia says Congress’ lack of spending restraint will hit the taxpayers eventually.
“It doesn’t help that they cut taxes without cutting spending to pay for it,” Boccia said. “What we’re doing now is taxing less and spending more.”