The sky is falling. Again.
Our modern day Chicken Little comes with a robust data set, a not so simple economic
model, and the staff of the Congressional Budget Office (CBO) and the University of
Pennsylvania Wharton Budget Model. In late 2023, each issued a US Federal Government
budget forecast report. In 2024, amidst an election in which votes will be cast for president, 33
senators and each of the 435 house members, the CBO and U of Penn remind us of what is at
stake.
Between the years 2043 - 2053, the United States government will reach a debt-to-GDP
ratio between 175 - 200 percent. Such levels, through a combination of cost of debt and
decreased economic activity, a factual default by the US Treasury on its debt obligations will be
triggered. In turn, this action leads to a negative global economic event from which the US will
not be able to tax or spend (reductions or increases) its way over, under, or through.
The preamble of the United States Constitution sets a vision that, “we, the people”,
through adoption of the Constitution set about to, amongst other desires, establish domestic
tranquility, promote the general Welfare, and secure liberty all our live long days.
The Constitution further provides the means to do such as it forms a federal government
and grants to Congress broad powers to finance said government. All of which we learned in
middle school.
Members of Congress have forgotten these foundational edicts and their solemn
responsibility to ensure our government’s solvency.
The CBO, in a remarkable act of faith, programs into its estimates a “closure rule”.
Loosely defined, the closure rule is an unspecified future act of Congress that would “fix” or
close the gap between expenditures and revenue. This future fiscal policy might be a broad-based
value added tax, wage-based tax, proportional income tax, or omnibus reduction in spending.
In the modern Congressional budgetary history (post-1974 Congressional Budget Act),
Congress has only passed its required appropriations measures on time in four fiscal years, 1977,
1989, 1995, and 1997. In the past decade, there have been four federal government shutdowns
for lack of a budget and appropriation action of the US Congress. Not exactly a stellar 50-year
record.
Consider also that the twelve necessary appropriations bills required to operate the
agencies of the federal government, combined, only account for one-third of the total annual
spending. To be fair, these discretionary expenditures are the only budgetary flexibility afforded
Congress. But for all the huffing, puffing, and foot dragging, one would have the impression that
their impact would be of greater significance.
The non-discretionary spending categories are entitlement programs and interest
payments on the national debt. Only specific changes to the laws governing entitlement programs
can alter the spending trajectory of this non-discretionary category. As long as the national debt
continues to grow at a trillion per quarter, there is no hope to reduce this spending category.Given these realities, the CBO’s closure rule and its inclusion in the forecasting model
feels more an act of delusion rather than an act of faith.
More to the point, budget leadership within Congress or within the White House is much
needed and sorely lacking. The doomsday budget clock continues to tick on at a deafening level
to all of us yet silent to the people who can solve the problem. Time to bring policy back to
politics. The sky is falling.
