There has been a great deal of action lately on matters affecting deficits and debt and much still in the works as policymakers rush to meet some deadlines at the end of the year. Tax cuts are now at the top of the agenda, but there is a lot more on Washington’s plate. Here’s your fix for the latest developments on the federal budget and national debt.
$20 Trillion in Debt and Counting – We hit a sad milestone in September when gross national debt surpassed $20 trillion for the first time. Without action to fix the debt, it will keep rising and endanger our future.
$666 Billion Deficit an Ominous Sign – Perhaps we are being sent a sign that we are on the wrong track fiscally. The federal budget deficit for fiscal year 2017, which ended on September 30, was $666 billion. It is an omen we should not ignore.
Is a Christmas Cliff Coming to Town? – Fiscal year 2018 began on October 1 without government spending for the year in place. But a government shutdown was avoided with a stopgap continuing resolution that will fund the government through December 8. None of the 12 appropriations bills that fund the government have been approved by Congress yet. This is nothing new as the government spending process has become more and more dysfunctional. Lawmakers likely will have to come to a bipartisan deal to lift the sequestration budget caps in order to finalize appropriations. There may also be deals on immigration, children’s health insurance, and continued disaster relief. Because tax reform is sucking up most of the oxygen in Congress, (see below) another stopgap measure is likely in order to avoid a shutdown on December 9. Keep track of the appropriations process.
Can’t Seal the Deal on the Debt Ceiling – You may have to add a new debt limit deal to the Christmas Cliff mentioned above. Congress suspended the statutory debt ceiling until December 8. After that point, the Treasury Department will be able to use “extraordinary measures” to avoid reaching the limit, but those measures may not last long. Treasury estimates those measures may only last through January 2018. Learn more about the debt ceiling. Since debt limit drama is a recurring theme, some are calling for getting rid of it. However, there are many ways to reform the debt ceiling so that it can help control the debt without threatening an economic catastrophe.
Budget Passed But it Doesn’t Pass Muster – Congress finally adopted a federal budget for fiscal year 2018 last month, more than three weeks after the fiscal year began and six months after the statutory deadline to complete a budget resolution. However, there is still work to do as the budget only establishes the topline spending numbers to be used in the appropriations process (see above). And those topline numbers are above the sequester spending caps, which means that lawmakers will have to come to an agreement in order to maintain those spending levels. Further, the budget does nothing to address rising budget deficits and debt. Instead, it allows Congress to add $1.5 trillion more to deficits over the next decade through tax cuts. You can create your own budget using the Debt Fixer interactive tool. And test your knowledge of the federal budget and national debt with our crash course and quizzes.
Tax Time – The great tax debate is upon us. The House of Representatives passed the Tax Cuts and Jobs Act on a party-line vote. The bill reduces the corporate tax rate and rates on most taxpayers and consolidates tax brackets from the current seven to four. It is estimated that the legislation will add about $1.5 trillion to deficits over ten years on top of the already expected increase, which comes out to nearly $12,000 per U.S. household. Trillion-dollar deficits would return by 2020, two years earlier than currently expected. Including the extra interest caused by these deficits, the bill could add over $2 trillion to the debt over a decade, which will bring the debt held by the public to the size of the economy by 2028. The Senate is close to voting on its own version. The two bills differ in many ways. Lawmakers want to pass a tax bill before the end of the year. Republicans are using the budget reconciliation process for the tax bill in order to avoid a filibuster and pass it in the Senate with a simple majority of 51 votes.
Time to Do Better – Although tax reform is needed, it should not add to the national debt. Comprehensive tax reform should address most of the tax breaks and loopholes that litter the tax code and cost some $1.6 trillion in lost revenue each year. Real tax reform would make the tax code fairer and simpler and pay for reducing tax rates to make the system more globally competitive without increasing the debt, which would help boost the economy. Despite what some claim, tax cuts don’t pay for themselves through increased growth. And tax cuts that add to the debt will slow the economy in the longer run. Tell Congress not to make future generations pay for the tax cuts through higher debt.
Updated 11/29/17 with the latest developments on tax reform.
National Debt and You