The title of the Congressional Budget Office’s annual “Budget and Economic Outlook” may sound boring, but this document makes for horrifying reading. The latest edition of the report projects staggering numbers over the next decade, estimating that the federal deficit will swell from almost $1.7 trillion in 2023 to over $2.5 trillion in 2034.
This headline figure barely scratches the surface. Analysts have long warned about the pressure social security entitlements would put on the rest of the federal budget over the long term. On top of that, interest payments on the national debt are expected to cost $1 trillion more a decade from now, which means that by 2034, the US is projected to spend $600 billion more on servicing its debt than on national defence.
This budgetary trajectory has major geopolitical stakes. The CBO projects that defence spending as a percentage of the economy will shrink over the next decade from 3% to 2.5% of GDP. Thus, these massive deficits already assume a de facto cut in American defence spending relative to the national economy. As current events show, future foreign policy crises could further test those fiscal resources. By many estimates, the United States has already spent close to $75 billion in aid sent to Ukraine, and the Senate just advanced a bill that would appropriate $95 billion in additional military assistance to Ukraine, Israel, and Taiwan.
These commitments invariably put the CBO’s projections on defence spending at odds with the White House. In fact, the last time that the US spent under 3% of its GDP on defence for any sustained period was before World War II. That level of spending would make much more brittle the web of security commitments that the United States has built over the past eight decades. At some point, Joe Biden will be forced to choose between winding down some of these commitments, changing his domestic-spending agenda, and putting a bigger hole in the deficit.
Adding to this geopolitical pressure is that borrowing to pay for more defence spending over the CBO’s estimates could weaken the US security posture over the long term. Every dollar borrowed now adds to the interest payments due later, which in turn crowds out defence spending in the future. Fiscal profligacy has long-term national security implications.
Despite the scope of these fiscal challenges, the presidential election has avoided mentioning them so far. Sky-high deficits are a pillar of “Bidenomics” (the White House’s own budget projects deficits of close to 5% of GDP indefinitely) and an essential element of Biden’s election pitch. This is in spite of the fact that, historically, the US has only had that magnitude of sustained deficit spending during an economic crisis or a world war. By Barack Obama’s second term, the deficit bobbed around 3% of GDP, so Biden has definitely pushed the budgetary envelope relative to his Democratic predecessor.
Of course, the current President is not the only one to blame here. Even before the coronavirus pandemic, the deficit as a percentage of the overall economy grew during Donald Trump’s presidency. Yet he knows as well as anyone else that austerity is a nonstarter — hence why Trump has learned from past Republicans missteps and led with a “hands off” message for entitlements.
However, a policy programme that does not confront these deficits or their fundamental drivers could force policymakers to make hard choices in the years ahead. The United States may risk a geopolitical reckoning if it can’t get its fiscal house in order.