New Congressional Budget Office projections show that federal budget deficits will rise from $1.41 trillion in 2023 to $2.85 trillion by 2033. In 2023, federal spending of $6.22 trillion is 29 percent higher than federal taxes of $4.81 trillion. By 2033, projected spending of $9.95 trillion would be 40 percent higher than taxes of $7.10 trillion. Deficits are projected to explode even though Republican tax cuts are set to expire after 2025.
Without budget reforms, accumulated federal debt held by the public will almost double from $26 trillion in 2023 to $46 trillion by 2033. That vast expansion in debt will undermine growth and possibly trigger a severe economic crisis.
The main drivers of rising deficits and debt are Social Security and Medicare, as shown in the chart with CBO data. The combined cost of the two programs for the elderly is projected to leap from $2.35 trillion in 2023 to $4.46 by 2033. By then, spending on the two programs will be four times higher than spending on national defense.
To combat the debt problem and avert a crisis, Congress should restructure Social Security and Medicare. Policymakers in both parties should be studying the programs and offering constructive solutions. Unfortunately, President Biden decided to poison the well for bipartisan reform last week. In the SOTU, he said, “If anyone tries to cut Social Security, I will stop them. And if anyone tries to cut Medicare, I will stop them.” Then he escalated his attack against anyone suggesting that entitlement spending be reviewed for possible reforms.
In the SOTU, Biden said, “I ask my Republican friends to offer their plan. We can sit down together and discuss both plans together.” Then to show what a great friend he is, the president later indicated he would trash any Republican proposing to cut entitlements—he would be their “nightmare” he said. In Washington‐speak, “cut” includes any proposal to even slightly trim the rapid growth in auto‐pilot spending.
Scared of the attacks, many Republicans are running for cover. But Senator Ron Johnson is right that Social Security is a “ponzi scheme,” as is Medicare. Prior generations of politicians promised future benefits that are not affordable, and young people will be left holding the bag. The real nightmare will be if the nation can’t find leaders with more vision than the GOP’s “friend” in the White House.
Chris Edwards occupies the Kilts Family Chair in Fiscal Studies at Cato and is the editor of DownsizingGovernment.org.