It's been a while since America's budget deficit has been in the headlines, but the gap between how much money the federal government brings in and how much it spends is growing once again. During fiscal year 2018, which ended on September 30, Washington ran a $779 billion deficit--the largest since 2012. We are likely to hit $1 trillion in deficit spending in the current fiscal year.
Even those massive numbers have struggled to break through in a news environment dominated by presidential tweets and the culture wars. The Manhattan Institute's Brian Riedl is trying, however, to keep lawmakers' eyes on the challenge. In a recent paper, he floats several ways the United States could change course before it hits the financial iceberg. But talking with Reason's Eric Boehm in October, Riedl explains why he thinks the ship is nonetheless more likely to sink than to veer to fiscal safety.
Q: Within the next year, the U.S. government will be running a trillion-dollar annual deficit. How should we think about that?
A: We're about to be hit with a fiscal tsunami that we're not prepared for. The national debt right now is $20 trillion, and we're going to be hit with an $84 trillion shortfall over the next 30 years, according to the Congressional Budget Office--and that's the rosy scenario. One way to think about it is: In order to pay for all of this, your federal tax burden would have to double. As a percentage of the economy, federal spending is going to grow toward European levels.
Q: But is a $1 trillion deficit really that much worse than a $999 billion deficit?
A: From an economic point of view, each marginal billion is not a big deal. But a trillion dollars is symbolically important, and the bad news is that it's only going to get worse. We're heading toward a deficit of $2 trillion within a decade, or even $3 trillion if interest rates rise. Those are numbers that have to get people's attention. We've never had deficits like this during peace and prosperity before.
Q: You argue 2023 is a significant threshold for addressing these problems. Why is that?
A: The proposals that I recommend to avert this debt crisis start five years from now. It's not because we can afford to wait five years--as a matter of fact, waiting five years will make things a lot worse than if we do it now. It's an acknowledgment of the politics at play. Politically, we are not close to being ready...