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House Financial Services Committee Chairman Jeb Hensarling is trying to draw attention back to the nation’s mounting debt ahead of midterm elections that are more likely to revolve around Obamacare.
The Texas Republican scheduled a series of hearings on the debt, he says, after reading a newspaper article that noted that the national debt had faded from the agenda.
He held the first hearing Tuesday, inviting experts to testify on the debt and warning in his opening statement that “unsustainable levels of debt are harming our country today as we speak.”
In making the case that the debt is harming the economy, Hensarling warned that the interest on the debt is expected to cost $233 billion in 2014, more than seven times “the requested annual budget for the National Institutes of Health. Let us reflect upon all the childhood cancer studies going unfunded today because of our national debt.”
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More broadly, Hensarling expressed concern that interest payments, the rising cost of retirement programs as the baby boomers age, and increasing health care costs could crowd out other spending priorities. "Is entitlement spending going to be the ‘blob’ that ate discretionary government?” he asked.
Alice Rivlin, a Brookings Institution scholar testifying at the hearing, responded, “I think it already has been. In my view we’ve already cut discretionary spending to unsustainable levels.”
Rivlin, who served as a budget adviser to President Bill Clinton, noted that the Clinton administration prepared a deficit reduction plan in 1993, when rising interest rates forced net interest payments to 14 percent of total government spending.
“We were worried that unless we reduced the deficit and the projected build-up of debt, we would end up having to raise taxes or cut other spending just to pay the increasing debt service,” Rivlin said, adding that “the chances of getting into a similar bind are higher now” because of the higher level of debt.
The federal deficit fell from $1.1 trillion in 2012 to $680 billion in 2013, with the Congressional Budget Office expecting a further decline to $514 billion in fiscal 2014. But the public debt is 72 percent of U.S. economic output, and projected to be 79 percent and rising in 2024. In the long run, the CBO projects the debt, driven by the rising cost of entitlement programs, to continue growing, to 110 percent of GDP in 2038.
Over the next 10 years, the CBO anticipates that mandatory spending — automatic spending on entitlement programs such as Medicare and Social Security — will continue to rise, as will the cost of interest payments on the debt. Discretionary spending, which is all appropriated spending, including for defense programs, will drop from 7.2 to just over 5 percent of GDP.
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As for interest payments, they are currently relatively low, at 6 percent of all government spending. That is thanks to a depressed economy and the Federal Reserve’s efforts to lower rates through quantitative easing.
But the Office of Management and Budget sees net interest costs rising again over the course of the decade as the economy improves, rates rise and the Treasury refinances the debt. Interest payments as a share of federal spending is expected to double, to nearly 12 percent, or $550 billion, by 2019 — assuming no adverse market reaction at any point.
Democratic minority whip Steny Hoyer of Maryland raised concerns similar to Hensarling’s on Monday, saying at a speech in Washington that “without action, we will be a nation that can’t invest in its own people” because of rising mandatory and interest spending.
“Every dollar we spend on interest is a dollar we can’t spend on Head Start, nutrition assistance, job training, infrastructure, innovation, support for public schools and early education, and other investments that help more of our people make it in America,” said Hoyer, noting that “those investments are already being crowded out.”
Hoyer also cited a report from the left-of-center think tank Third Way that found that the federal government spent $3 on public investments for every $1 it spent on entitlements, but that ratio was reversed by 2012, and projected to fall to one-to-five by 2022.