Future generations will be crushed by the federal government’s growing mountain of debt
Aug 8, 2019 12:42 pm ET | Updated Aug 8, 2019 12:56 pm ET
(The Blue Diamond Gallery)
In 2018, the federal government paid $357.3 billion in interest on the nation’s fiscal operating debt, $61 billion more than the previous year. That is more than seven times what it spent on education, and enough to build 27 aircraft carriers. The combined interest payments of the four years from 2015 through 2018 total $1.2 trillion. That figure exceeds each of the State Data Lab‘s top three categories of federal spending which are: Health and Human Services at $1.1 trillion (primarily includes Medicare and Medicaid), Defense & Veterans Affairs at $1 trillion, and Social Security at $1 trillion. The interest payment is projected to more than double by 2025, reaching $725 billion.
Social Security is the only one of those categories that has risen every year over the past decade. Between 2008 and 2018 Social Security expenditures rose by $247.2 billion when adjusted for inflation. As demonstrated by the chart below, Social Security spending exceeded $1 trillion for the first time in 2018, and HHS spending for the first time in 2015. The Social Security Board of Trustees say the program is on track to become insolvent by 2035, when the “trust fund” will be completely depleted. If or when that occurs, the Board will automatically impose a 20% cut in benefits to all program recipients. The government’s projected insolvency of Medicare is less than seven years away, in 2026. Analysts say that achieving financial stability will be much tougher for Medicare than Social Security because health care costs fluctuate sporadically as new medicines and procedures enter the market.
These programs are even more unstable than they sound, in part because they do not meet the Treasury Department’s own definition of a trust fund, which includes, “In the federal budget, the term ‘trust fund’ means only that the law requires a particular fund be accounted for separately, used only for a specified purpose, and designated as a trust fund.” Although worth keeping an eye on, Truth in Accounting considers the government’s projected insolvency of entitlement programs to be an insufficient yardstick because the politicians and bureaucrats who oversee them do not adhere to the most basic standards of accounting. According to the Federal Accounting Standards Advisory Board, “Until benefits become due and payable, there is no binding commitment over which a worker has control and so no liability can be recognized.” That probably sounds like Latin to most people, but what it means is that the government does not acknowledge its obligations to pay Social Security benefits beyond the checks it has to write for the current month.
The three aforementioned categories are the primary drivers of America’s $22 trillion fiscal operating debt, as they comprise the bulk of the $4.5 trillion in total federal expenses for 2018. I use the terms “national debt” and “fiscal operating debt” interchangeably, but prefer the latter because we at Truth in Accounting believe that the most precise measure of our nation’s debt should include the unfunded promises to entitlement programs such as Medicare and Social Security. By that metric the true national debt is $118 trillion, or $774,000 per taxpayer, as indicated by the debt clock on our website. The ratio of fiscal operating debt to GDP is currently 104 percent, the highest peace-time debt in American history. This is a daunting reality, but history offers a glimmer of hope.
The debt to GDP ratio surged from 48 percent in 1942 to a peak in 1946 of 119 percent, spurred by World War II. The silver lining is that within ten years the ratio was nearly halved, dropping to 61 percent by 1956. That debt was much easier to reduce because the underlying federal spending increases behind FDR’s New Deal programs, World War II military expenditures, and the Marshall Plan were mostly temporary. By contrast, spending for the entitlement programs that are driving our modern national debt shows no signs of slowing down. The prospect of the United States growing its way out of the current national debt is dubious and wishful thinking.
As the conservative radio host Mark Levin has frequently pointed out, the laws of economics are not unlike the laws of physics. Absent any serious entitlement reform, often deemed the third rail of American politics because of how controversial it is, the laws of economics will eventually crush political promises to Social Security and Medicare. At some point in the future, perhaps within the next half century, interest on the national debt will eat up the federal budget to the degree that paying off any substantial portion of the debt will be unfeasible and fighting a large scale, multi-year war will become fiscally impossible.
Millions of disabled Americans rely on Social Security to survive. Millions of workers expect to eventually receive what they were forced to contribute and promised would be paid back in dividends to supplement their retirement. Fulfilling these promises will require a massive increase of the payroll tax.
Republicans have made a few noteworthy attempts at entitlement reform to avert such dire circumstances. The most significant was President Bush’s failed effort to reform Social Security by transitioning it toward a system of individual accounts for future beneficiaries instead of one large trust fund. In 2011 Paul Ryan floated a proposal that would’ve transformed Medicare into a voucher like system. The Graham-Cassidy Bill of 2017 came the closest to passing but died in the Senate. It would have turned Medicaid into a system of block grants, limiting the funding each state could receive. President Trump campaigned on a promise to refrain from making any cuts to Social Security or Medicare, and has so far kept that promise. Unfortunately, the trajectory of spending on those programs and the debt they incur pose a grave threat to the stability of the world in which our children and grandchildren will live.
Jason O’Day is an online marketing and social media intern at Truth in Accounting, a nonprofit organization based in Chicago that researches government financial data.