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The Silence of the Deficit Hawks

You may have heard that the tax “reform” proposal now under debate in Congress would add (depending on who’s counting) around $1-1.5 trillion to the deficit over the next ten years.  Naturally, all of the people who have in the past campaigned against runaway government spending and threatened to shut down the government if the deficit was not reduced have risen up to block the proposal—just kidding.  Apparently the deficit which for the last eight years was going to ravage our country and doom our progeny to a lifetime of debt servitude is no longer a relevant issue.  And people say that nothing gets done in Washington.

Sarcasm aside, the additional debt caused by the changes to the tax code is almost irrelevant in the larger scheme of things.  That’s because the deficit was already projected to increase over $10 trillion in the next decade, according to the Congressional Budget Office.  Even more, the CBO’s budget does not take into account the average of roughly $250 billion of debt that is added each year without being included in the official deficit figures.  Nor does the CBO project an economic downturn, which was the chief cause of the unanticipated trillion dollar deficits in 2009 and 2010.   Put all of these factors together, and one can project an increase in the national debt of about $15 trillion over the next ten years, with or without a change to the tax code.  Add that to the $20 trillion in debt the federal government started this fiscal year with for a total of approximately $35 trillion in 2027. 

The trillions of dollars start to make your eyes glaze over at some point, so let’s have a little context.  $35 trillion would be about $100,000 per American citizen.  If the average interest rate was 3%, that would mean the federal government would be paying out $1 trillion annually just to service the debt, or $3000 for every man, woman, and child in the country.  Of course, this would be ten years from now, so presumably salaries and wages would also have increased somewhat (at 3% inflation they would have increased by about 40% in that time), but still, that amount would be astounding. 

In fact, by 2027, the CBO projects that the deficit will be $1.5 trillion per year in ordinary times—that is, no wars or recessions.  In this scenario, one will almost certainly hear calls for cuts to Social Security and Medicare—calls that will almost certainly come from the same people who are now so silent regarding the tax proposal and its corresponding increase to the deficit.  Perhaps we should not think of the deficit hawks as dead but merely resting.

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.  

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Doylestown Wealth Management, Inc. are separate entities from LPL Financial.