Coronavirus debt will kill policy dreams
The coronavirus has disrupted the economy so much that it convinced Republicans, even the most conservative ones, to support a $2.2 trillion relief package. This support is appropriate and in tune with conservative ideals. There is a crucial distinction between bailing out failed businesses and compensating those whom government has made idle in the name of the public good.
Still, some believe that these temporary measures will empower the left to advance a sweeping social welfare agenda. The problem for those seeking a dramatic expansion of government is that, once the dust settles on this crisis, there won't be money left for permanent expansions of government.
Before the coronavirus hit, Joe Biden, the Democrats' presumptive presidential pick, was calling for $6 trillion in spending to expand Obamacare and housing, as well as a web of new expenditures on climate change. But, once the U.S. emerges from this crisis, the government will be saddled with the largest debt in history. Neither Biden nor anyone else will be in any position to pile on more.
Even before the crisis started, trillion-dollar federal deficits were projected for as far as the eye could see. President Donald Trump was doing nothing to fix this with his policy of cutting taxes, increasing military spending, and ignoring the need to reform our broken system of entitlements. Then, things got much worse.
The onset of the virus has blown those grim forecasts out of the water. In any economic downturn, deficits rise as those who lose their jobs become more dependent on the social safety net and governments aren't reaping as much tax revenue. But this is no ordinary crisis, with an unprecedented 22 million people having lost their jobs.
On top of the $2.2 trillion relief package, deficits will be driven up as all individuals losing jobs and businesses losing customers will not be paying as much in taxes.
There's no magic number of debt that suddenly becomes impossible to maintain, but the CBO's economists have warned that, at some point, investors will become skittish about purchasing federal debt and will demand higher interest payments. Then, policymakers will be forced to impose crushing tax hikes and sudden and severe spending cuts that could depress the economy. Higher interest rates also mean the government spends more and more on servicing debt before it can address core priorities.
In a new report, the Committee for a Responsible Federal Budget projected that the 2020 deficit, previously expected to be $1.1 trillion, would be $3.8 trillion. Debt, meanwhile, is expected to exceed the size of the economy this year instead of in 2031 and to break the World War II record by 2023 instead of 2033.
In other words, the pandemic has moved forward our frightening fiscal reckoning by a full decade. As the report cautions, even these estimates are optimistic, only taking into account coronavirus spending that has already been signed into law. In the time since the report was published, the Senate and the White House agreed to an additional half-trillion in spending, and more is likely to follow. The report also assumes that the economy will recover by next year.
After World War II, Washington reduced debt over decades. But before the crisis, despite being at peace and with unemployment at a 50-year low, debt was on an unprecedented upward trajectory due to entitlement spending. To fix this was going to be politically difficult, but now, it will be harder to sell the dramatic changes needed to salvage Medicare, Medicaid and Social Security.
If there is a silver lining to this disaster, it is that scarcity has a way of forcing sobriety. In the wake of the coronavirus, the nation will surely lose its appetite for dramatic new spending proposals on ever-growing liberal wish lists.