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Let's talk about that $1.9 trillion deficit

According to a report by the Congressional Budget Office, the U.S. is now facing a deficit of $1.9 trillion for the 2024 fiscal year — up $400 billion from its February estimates.

The bulk of the changes came from an increase in spending on student loans thanks to the Biden administration’s debt-forgiveness action, higher-than-expected spending on Medicaid, and the recently passed foreign-aid bill — all of which added to an already grim fiscal outlook.

Biden has repeatedly insisted that he has cut $1 trillion from deficits and that his budget would cut $3 trillion more. Both claims are deceptive.

The promised deficit savings in his budget depend on enacting offsets that remain unspecified. The assertion that he has cut $1 trillion from deficits is based on taking the peak Covid-era deficit (which he contributed to) and comparing it to deficits once the pandemic passed.

A better way to measure Biden’s performance is to consider the CBO’s projections when he took office and compare that to the latest CBO report. By this measure, the Biden record is much less flattering. Cumulatively, over the 2021 to 2024 period, deficits are now $2.6 trillion higher than what CBO had projected for the same period in February 2021, before any Biden policies had gone into effect.

We wish we could say that Donald Trump is providing a clear contrast with Biden when it comes to tackling the deficit problem. Unfortunately, neither Trump’s record nor his current rhetoric inspires much confidence.

Applying the same standard as above, by the end of the 2019 fiscal year — i.e., before Covid started — Trump had added $800 billion to deficits relative to what the CBO projected when he took office. Add in the pandemic spending of 2020, and that would bring the figure to over $3.1 trillion.

If given a second term, Biden says he will continue his push to create new domestic programs while expanding existing ones, and will seek to allow the Trump tax cuts to expire on higher-income households while still maintaining them for those earning under $400,000. Trump has said that he wants to extend all of his tax cuts. (According to various reports, in a meeting with Republican lawmakers, he floated the idea of raising tariffs to offset income-tax cuts, which presumably would have the effect of increasing many consumer prices without generating sufficient revenue, though it’s difficult to evaluate given that no formal proposal exists.) Most significantly, neither candidate wants to do anything serious to rein in entitlements, which are the main driver of the nation’s long-term debt problems. And neither party has offered a reason to believe that Congress is prepared to act.

Thanks to Social Security, Medicare, and Medicaid, even if the next president does no further harm and the programs just run on autopilot, the fiscal situation will only get worse. Looking further ahead, CBO projects that by next year, the U.S. will spend more than $1 trillion on interest payments alone — or more than the defense budget. In 2027, the public debt will reach 106.2 percent of gross domestic product — eclipsing the previous record set during World War II.

The troubling difference is that federal spending levels were lower going into World War II, and once the crisis was over, spending had returned to more normal levels, and the debt receded. In contrast, America was already on an unsustainable path before Covid hit. Then, during the pandemic, spending accelerated from $4.5 trillion in 2019 to $6.8 trillion in 2019 — and it has not returned to the pre-Covid path. Instead, pandemic-era spending got baked into the federal budget, and CBO projects 2024 spending will hit $6.8 trillion again. Under the revised estimates, in a decade, debt will hit a staggering 122.4 percent of GDP.

Unless major changes are made to alter the current path, Americans will face harsh trade-offs, with the possibilities including: crushing tax increases, severe spending cuts, the degradation of military readiness, economic stagnation, or some combination of all of the above.

This is a recipe for American decline.

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