On a muggy morning this week, a group of bankers and investment managers met at the Hay Adams Hotel in Washington, D.C. They got an update from the Treasury Department about government cash flows and, according to minutes of the meeting, the picture wasn’t pretty.
Corporate tax receipts are down for the year, while government spending is up. Even with a fast-growing economy, the Treasury Department expects to borrow more than $750 billion to pay its bills during the last six months of this year.
“The federal budget deficit is ballooning, skyrocketing, soaring, whichever way you want to describe it,” said longtime fiscal watchdog Stan Collender, who blogs about federal finances as “The Budget Guy.”
“You’ve got a kind of perfect storm here,” Collender said. “You’ve got more spending. You’ve got less revenue. And the deficit is just getting bigger and bigger, to the point where it will be at least a trillion dollars every year during the Trump administration and beyond.”
Even the White House’s own rosy forecast acknowledges that the deficit will exceed 5 percent of the overall economy next year — a level it’s previously reached only after deep recessions, when unemployment topped 10 percent. Today, the economy is near full employment. But the government is still acting like a spendthrift family, piling up credit card bills even though times are good.
“It’s close to unprecedented,” Collender said. “When the economy is doing well, which it’s obviously doing and has done for a decade, you would want a fiscal policy that would get the deficit to go down, not up.”
But policymakers in Washington have gone in precisely the opposite direction. Earlier this year, Congress boosted spending on both the military and domestic programs. And then there’s the tax cut, which the president bragged about at a campaign rally this week.
“We passed the biggest tax cuts and reform in American history. Biggest cuts in history,” Trump told supporters in Tampa.
“Let me be 100 percent clear about one thing: The tax cuts are never going to pay for themselves,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “They can grow the economy, but not enough to come anywhere close to offsetting the cost of them.”
MacGuineas blamed an outbreak of fiscal “free-lunchism” for the growing mountain of government debt.
“If you want to spend more, you have to pay more in taxes,” she said. “And if you want to cut taxes, you have to be willing to cut spending also. And right now it seems to be this period where no politician is willing to do any of those.”
Like a family that’s maxed out its credit cards, policymakers may have less room to maneuver the next time they’re confronted with an actual crisis, as a result of the government’s mounting debt load.
“Last time we had a recession, our debt was half the level it is today, relative to the economy,” MacGuineas said. “That meant we had a lot of fiscal tools to help respond. But as our debt gets higher, our ability to respond to a recession or another kind of crisis is definitely much more difficult.”
The growing deficit also means higher borrowing costs. So far this fiscal year, growth in Social Security, Medicare and defense spending have all been eclipsed by rising interest on the debt.