The U.S. needs a dose of fiscal responsibility

President Joe Biden and Congress should take a break from their ritualized wrangling over the debt ceiling and look closely at last week’s projections from the Congressional Budget Office.

These show that an already bad fiscal outlook is rapidly getting worse. The new forecast makes the standard assumption that the policies in place won’t change - thus proving beyond a doubt that they’ll have to.

Last May, the CBO projected a budget deficit of just under $1 trillion for 2023. It now expects a deficit of $1.4 trillion, or 5.3% of gross domestic product.

Deficits continue to trend higher, not just in dollar terms but as a proportion of national income.

The cumulative deficit over the next 10 years is estimated at $19 trillion, $3 trillion more than before. The ratio of public debt to GDP rises to 98% this year, and to 118% by 2033. After that, the debt burden just carries on growing, year in year out.

There’s a word for all this: unsustainable.

Note, as well, these projections are somewhat optimistic. They assume that some tax cuts passed in 2017 will expire, as that law required, in 2025; if these provisions are extended, future deficits will be bigger.

And they describe an economy that, following a sluggish 2023, resumes moderate growth of around 2% a year for the next decade, with an unemployment rate of less than 5% throughout.

Mix a deep or prolonged recession into this scenario such things have been known to happen - and the fiscal picture is no longer merely unsustainable, but potentially catastrophic. The CBO explains that two main things are to blame for the deterioration since its earlier exercise.

The first is new legislation including an expansion of veterans’ benefits costing nearly $800 billion over 10 years.

The other is higher-thanexpected inflation, which increases the costs of entitlement programs and debt service more than it adds to revenues.

Washington’s debt-ceiling fight is all but blind to the need for fiscal sustainability. Democrats have tied themselves to an agenda of boundless public spending while promising to shield the vast majority of households from higher taxes.

Republicans want spending cuts - but not to reduce deficits. Their goal is to shrink the government, and they’re perfectly happy with ever-increasing deficits and public debt so long as tax cuts are part of the mix. Meanwhile, they think, threatening to destroy the U.S. government’s standing with creditors is permissible.

Most likely a deal will eventually be done to raise the debt ceiling - probably at the last minute, after the obligatory brinkmanship has adequately boosted the egos of all concerned.

But there’s little reason to suppose it will address the underlying mismatch of outlays and revenues. Avoiding an immediate self-inflicted default, with all the damage this would cause, is the least of what the country should expect.

Responsible fiscal policy is about reconciling longer-term ends and means, and keeping public borrowing and debt as a proportion of GDP under steady, methodical control.

The White House shouldn’t need to be told that compromises on taxes and spending are going to be necessary. Here’s an idea: Biden should start suggesting some.

Last May, the CBO projected a budget deficit of just under $1 trillion for 2023. It now expects a deficit of $1.4 trillion, or 5.3% of gross domestic product. Deficits continue to trend higher, not just in dollar terms but as a proportion of national income.