In his State of the Union message, President Biden may have mentioned the federal deficit, but he failed to discuss how years of inaction have jeopardized Americans’ retirement and their national security. Biden attempted to take credit for a budget deficit of “only” an estimated $1.2 trillion this fiscal year—a measure less of fiscal rectitude than his inability to jam his $5 trillion spending proposal through Congress last fall.
The real problem, and prime source of our more than $30 trillion in federal debt, comes from entitlements, and on that front, Biden offered only more new spending. The leader of a party who not long ago criticized Republicans for fighting two wars with three tax cuts now apparently wants to “reduce the deficit”—and fight the march of autocrats worldwide—by creating a new child care entitlement and expanding several others.
Debts Coming Due
Just as Vladimir Putin’s march on Kyiv finally forced many European countries to come to grips with over a decade of fecklessness in the wake of aggression, so too could the United States soon face the consequences of its long inaction on debt and deficits. The ramifications could undermine America’s ability to project its strength on the global stage.
In many ways, Obamacare lies at the root of this problem; its financial legerdemain has empowered politicians to ignore our entitlement crisis for more than a decade. The year prior to the law’s passage, Medicare’s trustees projected the program would become insolvent in 2017—five years ago. But because government accounting allowed Democrats to count Medicare spending reductions as both funding Obamacare and improving the Medicare trust fund, the law magically extended Medicare’s insolvency by a decade—if only on paper.
This gimmick enabled lawmakers of both parties to avoid the hard choices necessary to make America’s entitlements, and our long-term fiscal situation, sustainable. President Biden’s remarks last week demonstrate his head remains firmly in the sand. In a nearly 6,500 word speech, he mentioned Medicare only twice—neither in the context of solvency or reform—and Social Security not at all.
Biden’s entitlement reform proposals, such as they are, consist primarily of closing a tax loophole—one that he and his wife spent the past four years exploiting, to avoid nearly $400,000 in Medicare taxes—and re-directing those funds to yet more new spending. In amplifying Obamacare’s fiscal gimmicks and dishonesty to justify additional entitlements, the soon-to-be octogenarian president is showing little regard for his fellow seniors’ financial futures.
Growing Pressures on the U.S. Budget
Russia’s invasion of Ukraine puts the need for structural fiscal reform in even starker relief. America’s defense spending has fallen by nearly a third as a percentage of GDP, from 4.7 percent in 2010 to 3.3 percent this fiscal year, with a further drop projected in the coming years. Germany’s shock decision to increase its defense budget by €100 billion—with more to follow—in the wake of the invasion illustrates the hard fiscal choices lawmakers will have to make yet Biden has avoided.
In addition, the pricing pressures arising from the invasion, in the form of higher costs for energy and other goods, will exacerbate the problems of a Federal Reserve already behind the curve in fighting inflation. Hemmed in by a year of indecision and the pressures of the Ukrainian conflict, the Fed could have to tighten monetary policy further and faster, raising interest costs to the Treasury and increasing the possibility of a recession.
In July, the Congressional Budget Office estimated that borrowing costs to the federal government would rise to nearly $1 trillion by the end of the decade, more than doubling as a share of GDP from 1.3 percent to 2.7 percent and nearly eclipsing the entire defense budget. But those estimates assumed that inflation would remain under relative control, and the Federal Reserve would not start raising interest rates until “late 2023.” Subsequent events have rendered those predictions inaccurate, meaning CBO’s projection of $5.4 trillion in net borrowing costs over the coming decade could prove an underestimate.
Debt Is a National Security Issue
Biden believes he can carry on the left’s goals of creating “free” new entitlements for the American people. But all this “free” spending is undermining America’s financial freedom. Our existing obligations have already raised our debt to more than 100 percent of GDP, compared to Russia’s 18 percent. And rather than using the Ukraine invasion as an opportunity to call for sacrifice—to finally get our financial house in order—Biden instead proposed a spending blowout without end.
Over a decade ago, Admiral Mike Mullen, then the chairman of the Joint Chiefs of Staff, called the federal debt our biggest national security threat. If Biden really wants to protect and defend the United States from growing threats overseas, he should act accordingly.