This article was published by The McAlvany Intelligence Advisor on Friday, June 29, 2018:
At issue is the latest report from the Congressional Budget Office (CBO), which is increasingly sounding more and more like the boy who cried wolf. Most remember the fable: a shepherd boy repeatedly tricks nearby villagers into thinking that wolves are attacking his flock. When a wolf actually does appear and he again calls for help, the villagers believe that it is just another false alarm. They ignore the boy’s warning and the wolf devours the sheep.
The “2018 Long Term Budget Outlook” released by the Congressional Budget Office (CBO) earlier this week said that if current conditions hold (same tax policy, no recession, etc.) in the next ten years, the national debt will equal the national output of goods and services. In 30 years the national debt will be 50 percent larger than the country’s economic output. That’s double the national debt relative to GDP now, at 78 percent:
Under current law, federal debt held by the public is projected to increase sharply over the next 30 years as spending grows more quickly than revenues do. Driving that spending growth are interest payments on the [national] debt, major health care programs, and Social Security….
At 78 percent of gross domestic product (GDP), federal debt held by the public is now at its highest level since shortly after World War II. If current laws generally remain unchanged, the Congressional Budget Office projects, growing budget deficits would boost the [national] debt sharply over the next 30 years; it would approach 100 percent of GDP by the end of the next decade and 152 percent by 2048.
All of which is just awful, according to the CBO, repeating the warning it has issued regularly for decades:
Consequences of a Large and Growing Federal Debt
The burgeoning federal debt over the coming decades would have these effects:
- Reduce national saving and income in the long term;
- Increase the government’s interest costs, putting more pressure on the rest of the budget;
- Limit lawmakers’ ability to respond to unforeseen events; and
- Increase the likelihood of a fiscal crisis, a situation in which the interest rate on federal debt rises abruptly, dramatically increasing the cost of government borrowing.
It’s a Republican plot, according to Senator Chuck Schumer (D-N.Y.): “The Republican strategy is clear: increase the deficit on behalf of special interests, then use that as an excuse to slash benefits that hardworking Americans have earned.”
Schumer no doubt is referring to the unsustainable Social Security program, which just announced that its trustees are starting to liquidate part of its holdings of special government bonds in order to meet its obligations.
It’s far too pessimistic, according to Senator Robert Portman (R-Ohio). Portman said that lots of things can change in the next 30 years, and that history is likely to record much higher revenues than the CBO predicts, and that the national debt is likely to be much lower than estimated as well.
Portman says that the CBO’s estimate of just 1.9 percent annual growth in the economy is far too low: “Somehow we’re just going to go right back to where we had been, at 1.9 percent, which was the annual growth rate during the Obama years? I don’t think that’s the new normal. I think we can keep the growth rate much higher than that.”
Portman also suggested that welfare benefit payouts will continue to decline, specifically disability insurance benefits and food stamps, or SNAP.
According to the New York Times, fewer than 1.5 million Americans applied to the Social Security Administration for disability coverage in 2017, the lowest number since 2002, and disability applications are running even lower so far this year.
As for the SNAP program, the number receiving food stamps peaked at 47.6 million back in 2013 and has been declining ever since. In March, according to the U.S. Department of Agriculture, SNAP enrollment dropped to just over 40 million, a decline of more than 7½ million in the last five years.
Projecting those declines into the future, according to Portman, and taking into account that most prognosticators and forecasters have regularly and consistently understated the economy’s remarkable performance under the Trump administration, Portman is comforted that the CBO’s concerns about deficits and debt inundating the economy with unsustainable burdens are overblown.
Neither senator nor the CBO is taking into account something that is happening right under their noses: the repatriation of some of the trillions of profits American companies have temporarily stashed overseas for just such a moment in time as this. As Suzanne O’Halloron, the managing editor for FoxBusiness.com, explained: “America’s CEOs are not wasting any time in taking advantage of the tax reform plan. Over $300 billion was repatriated to the U.S. in the first quarter, according to the Bureau of Economic Analysis (BEA).”
That still leaves more than two trillion of profits waiting to be repatriated. When the bulk of that returns to the U.S. (capital returns to where it is treated best), along with investable capital from other international companies that now rightly consider the United States as one of the world’s most favorable tax havens, the impact on the American economy can hardly be overestimated.
While deficits and the growing national debt are concerns not lightly to be dismissed, it should be considered that when those unsustainable programs go bankrupt, beneficiaries will likely be much better off financially to withstand the austerity associated with their termination, thanks to that increasingly healthy economy.
RollCall.com: CBO: US Debt Burden Set to Break Record in Early 2030s
TheHill.com: CBO projects grim budget outlook under Trump