Those paying attention to the debt limit debate that ended in early June may be wondering what all the shutdown fuss is about, given that Congress and the White House agreed to new spending limits just a few months ago. Those limits, specified in the Fiscal Responsibility Act, were a sham from the beginning. Secretive side deals undermined the stated goals of the bipartisan agreement before the ink was dry. Now President Joe Biden has requested $40 billion in additional emergency supplemental spending, with the Senate adding several more billion to its appropriations bills, a glaring attempt to evade even modest fiscal restraints.
The debt limit deal did succeed in allowing both Democrats and Republicans to claim political victory while suspending the debt limit for more than 18 months. The losers are the American people, as excessive federal spending and unchecked entitlement growth drive up inflation and interest rates and undermine stronger economic growth. A more responsible way to raise the U.S. debt limit would have paired such an increase with a credible fiscal plan to stabilize the growth in the debt. Alas: With federal elections looming next year and the White House dug in against entitlement reform, Congress chose to punt instead.
The longer Washington waits to fix autopilot spending, the more damage they’ll do. The Congressional Budget Office’s latest long‐term budget outlook projects that U.S government spending will consume nearly 30 percent of the economy by 2053—almost 40 percent higher than the historical average. Congress is expected to rack up more than $100 trillion in additional deficits over those 30 years—more than four times what the U.S. government has borrowed over its entire history. Who will lend the U.S. government such vast sums?
The main drivers of this increase are heightened interest costs and the growth in health care and Social Security spending. With Medicare and Social Security responsible for 95 percent of long‐term unfunded obligations, according to the Treasury Financial Report, there’s simply no way any serious fiscal reform effort can leave these programs untouched. Every other part of the budget will either stay steady or decline slightly. Other so‐called mandatory programs, including various welfare programs, retirement benefits for federal employees, and some veterans’ benefits, are projected to decline as a share of the economy. Discretionary spending depends on what Congress decides to spend each year; if historical trends hold, this part of the budget will decline by one‐sixth. And yet this is the part of the budget that all this shutdown fuss is about.
The most likely outcome from the current standoff is a continuing resolution into December, followed by a spending‐laden Christmas tree bill before year’s end. This shutdown debate matters only so much, considering the huge fiscal challenge confronting the United States.