Joe Biden: “I guarantee you I will protect Social Security and Medicare without any change. Guaranteed,” the president said in March.
Donald Trump: “I will do everything within my power not to touch Social Security, to leave it the way it is.” A pro-Trump super PAC launched an ad attacking Florida Gov. Ron DeSantis for his efforts as a member of Congress to restructure benefits.
While Trump promised to not touch SS, Biden said he would protect SS “without any change“.
Biden’s “guarantee” is impossible, by existing law.
The pledge to not change a thing means automatic benefit cuts starting in 2033 according to the bipartisan Congressional Budget Office (CBO).
The basic story is familiar. Low revenues coupled with rising outlays on health-related programs and Social Security drive permanent, rising primary deficits as a share of the economy. Net interest payments also rise substantially relative to GDP due to high pre-existing debt, rising primary deficits, and gradually increasing interest rates. Unified deficits and public debt rise accordingly.
Under current law for the next 10 years, the CBO’s projections imply that persistent primary deficits will average 3.0% of GDP. Net interest payments will rise from 2.4% of GDP currently to 3.6% in 2033, an all-time high. The unified deficit, and even the cyclically adjusted deficit, will exceed 7% of GDP at the end of decade. Debt will rise from 98% of GDP currently to 118% by 2033, another all-time high.
Over the following two decades, the projected trends are even less auspicious. Primary deficits rise further as spending on Social Security and health-related programs continue to grow faster than GDP and revenue growth remains anemic. The average nominal interest rate on government debt rises to exceed the nominal economic growth rate by 2046, setting off the possibility of explosive debt dynamics. By 2053, relative to GDP, annual net interest payments exceed 7%, the unified deficit exceeds 11%, and the public debt stands at 195%. All these figures would be all-time highs (except for deficits during World War II and in the first two years of the COVID-19 pandemic) and would continue to grow after 2053.
Corporations too are projected to pay more, with payments predicted to grow by 6 percent, amid a projected 10 percent increase in profits.
Some companies’ tax bills are being pushed up by supply chain problems, CBO said. Normally, firms with big inventories are allowed to consider the last item they bought to be the one they just sold.
But when they dig deeply into or completely exhaust their inventories, they must recognize items bought long ago that may have cost them significantly less to purchase. Because the original price was lower, their profit looks bigger, and they owe more in taxes.
Also, provisions created as part of the 2017 tax overhaul targeting companies that stockpile profits in overseas tax havens are bringing in more revenue than forecasters anticipated.
“CBO continued to refine its treatment of income and deductions from foreign corporations and branches, including how it estimates taxes collected on global intangible low-taxed income (GILTI),” the agency said.
The Budget Control Act of 1974 is the most misnamed congressional act in American history. Far from “controlling” anything, its passage caused the federal budget process to spin out of control. In the six years preceding the act, with the Vietnam War raging, annual deficits averaged $11.3 billion. In the first six years after the Budget Control Act, with the war over, they averaged $54 billion.
What happened? The Budget Control Act cut the president out of the budget process by removing his political leverage, leaving Congress in near-total control of the budget. Congressmen have a strong incentive to bring home the bacon, both to their voters and, increasingly, to their donors. Logrolling—you vote for my project and I’ll vote for yours—is, all too often, how Congress works.
Before 1920, there was no unified budget process. Executive departments simply submitted their budget requests directly to Congress. What kept spending under control was a strong political consensus across both parties that the budget should be balanced if at all possible. That idea only began to erode in the 1960s, with a misuse of Keynesian theory.
