From the Committee for a Responsible Federal Budget
With Congress underway with using the budget reconciliation process to enact broad swaths of the Republican agenda, lawmakers have a choice – take responsible steps to address our concerning fiscal trajectory or continue down a path of reckless borrowing that will saddle future generations. Unfortunately, the budget resolution adopted by the House seems to be opting for the latter. Instead of using budget reconciliation to rein in deficits, Congress appears poised to add trillions more to the national debt at a time when the country can least afford it.
The numbers paint a dire picture. In just four years, public debt as a share of Gross Domestic Product (GDP) will surpass its all-time high of 106%, set in the aftermath of World War II. Over the next decade, deficits will amount to a staggering $22 trillion, and interest payments alone will exceed $1 trillion annually, making them the second-largest line item in the federal budget – surpassing even defense spending. And these figures don’t even account for tax cut extensions or new spending priorities that lawmakers continue to push without regard for how they will be paid for.
Our current fiscal landscape is far from where it was in 2017 when Congress passed the Tax Cuts and Jobs Act (TCJA). At that time, the public’s share of the debt stood at 76% of total GDP. Today, it’s near 100%. Interest payments – a manageable 1.4% of GDP in 2017 – have more-than-doubled to 3.2%. And deficits have ballooned from 3.4% to 6.2%. Simply put, the nation’s finances have deteriorated dramatically, yet Congress is considering policies that would make the situation even worse.
The most concerning part of the House proposal is fully extending the TCJA and spending increases without sufficient offsets. If Congress moves forward with this approach, it will raise deficits by at least $2.8 trillion over the next decade. This alone would push the debt-to-GDP ratio to 125% within ten years, a level that would significantly increase the fiscal sacrifices needed to stabilize our debt as a percent of GDP or let alone balance the budget. Lawmakers shouldn’t extend the TCJA without corresponding spending reductions or revenue increases that allow Congress to pay for their priorities, not borrow more to pay for them. Every dollar added to the debt now will only make future solutions more challenging.
During negotiations on a final budget, House and Senate lawmakers must drastically improve their proposals to account for significant offsets or a decrease in the tax cuts, or we risk adding trillions to the debt.
Instead of finding legitimate offsets, many lawmakers are resorting to gimmicks to mask the true cost of their policies. The House budget, for example, assumes $2.6 trillion in macroeconomic feedback from its policies – an unrealistic projection when credible estimates suggest the true economic impact of extending the TCJA would be at most $710 billion – likely much lower. Worse, some lawmakers are considering using the gimmick of a current policy baseline to hide the full $4.5 trillion cost of extending the tax cuts, a dangerous precedent that would erode budget accountability in future spending debates.
Some lawmakers may argue that passing a budget resolution is just a procedural step and that lawmakers will work out the details later. But history tells us otherwise. In 2017, the budget resolution set the stage for a $1.5 trillion increase in the deficit through the TCJA – the exact amount the final bill added to the debt. The current budget process is no different. If lawmakers don’t set responsible fiscal targets now, they will lose any leverage to achieve meaningful deficit reduction later.
Fiscal conservatives in Congress must step up and offer real solutions to reduce our debt rather than pushing for tax cuts without offsets. If they are unwilling to make these difficult choices, they should not be pursuing policies that would further explode the debt. Failure to act responsibly today will only guarantee a future filled with higher taxes, higher inflation, and a potential fiscal crisis that will leave Americans worse off.