Deficits in the 21st century have been much worse than experts predicted they would be in the short period of federal surpluses around 2000, even though health care cost growth has been somewhat more modest than expected. Both parties in Congress have supported cutting taxes and increasing spending, resulting in unprecedented peacetime debt accumulating—and there is no reason to believe this trend will reverse. America’s debt-service burden is quickly becoming crushing, with interest payments likely to rise to almost 4 percent of gross domestic product within a decade. In other words, American taxpayers will soon pay as much to service the debt incurred by past spending as they do on current national defense or nondefense discretionary spending. This may well lead to economic problems, but even if it does not, it will crowd out other important priorities and stoke political resentments. The United States’ processes for budgeting and spending have proved utterly unequal to the seriousness of its debt problem. Intense congressional fights over the debt ceiling and annual spending bills have failed to produce—or even seriously consider—ambitious legislation that would do more than address annual discretionary spending. The modest correctives that current debates yield, such as the Fiscal Responsibility Act of 2023, are simply not enough, given the problem’s size. Members of both parties who are serious about confronting the debt problem must insist on process reform, rather than seeking dramatic but ineffectual confrontations in the existing system. Read the full pdf. Introduction At the end of the 20th century, Americans were treated to a welcome surprise: The federal government recorded a budget surplus for the first time since 1969. That happy fiscal year (FY) 2000 accounting entry reflected boom-time revenues and a peace dividend after the Soviet Union collapsed and the Cold War ended. But the surplus was also the result of lawmakers’ long struggle to master the federal budget. From the time of the Congressional Budget and Impoundment Control Act of 1974 until FY1999, Congress passed a budget resolution every year. Legislators did not always show fiscal restraint, but they at least showed a sense of responsibility for budgetary outcomes. Faced with high interest rates, they made major course corrections with a Social Security deal in 1983, the Gramm-Rudman-Hollings Act of 1985, the Budget Enforcement Act of 1990, the Omnibus Budget Reconciliation Act of 1993, and the Balanced Budget Act of 1997. Democrats and Republicans’ fights over taxes and spending were often acrimonious and sometimes downright ugly, but at the start of the new millennium, there was no gainsaying their fundamental success in taming the country’s fiscal challenges: The budget was balanced, and inflation and interest rates were low. In April 2001, Federal Reserve Chairman Alan Greenspan, feted as the maestro of economic good times, worried that the near-term retirement of America’s national debt would lead future surpluses to crowd out private investment. In other words, America’s leading economic light said Americans were in danger of
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