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Could Another Debt-Level Spike Cause More Defense Cuts?

Apr. 15, 2014 - 04:02PM   |  
By JOHN T. BENNETT   |   Comments
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Despite deep across-the-board cuts scheduled over the next decade, the US federal deficit is projected to again hit $1 trillion in just eight years. (Alex Wong / Getty Images)
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WASHINGTON — Despite deep across-the-board cuts scheduled over the next decade, the US federal deficit is projected to again hit $1 trillion in just eight years. And already there are calls for additional steps, even as the defense sector continues dealing with sequestration.

Congress and the Obama administration since 2009 have battled over a package of long-term measures to pare the massive federal deficit. The best they could do amid bitter political partisanship was sequestration, which mandates a nearly 10 percent cut each year to all non-exempt defense and domestic accounts well into the next decade.

But the nonpartisan Congressional Budget Office (CBO), in a report released Monday, is projecting the deficit will dip only for a few years — then climb by 2022 back to the $1 trillion level that set off the political right and triggered the deficit-reduction era fueled by the tea party movement.

“If current laws do not change, the period of shrinking deficits will soon come to an end,” according to the CBO report. “Between 2015 and 2024, annual budget shortfalls are projected to rise substantially — from a low of $469 billion in 2015 to about $1 trillion from 2022 through 2024 — mainly because of the aging population, rising healthcare costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt.”

The CBO echoed comments made by former Joint Chiefs Chairman Adm. Michael Mullen, who said before retiring that the national debt was perhaps the United States’ biggest national security threat.

“Such high and rising debt would have serious negative consequences,” the report states. “Federal spending on interest payments would increase considerably when interest rates rose to more typical levels. Moreover, because federal borrowing would eventually raise the cost of investment by businesses and other entities, the capital stock would be smaller, and productivity and wages lower, than if federal borrowing was more limited.

“In addition, high debt means that lawmakers would have less flexibility than they otherwise would to use tax and spending policies to respond to unexpected challenges. Finally, high debt increases the risk of a fiscal crisis in which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.”

National security officials have sounded like deficit hawks in recent years because Washington borrows a hefty amount each year from China — its banker but also its top global rival.

The CBO’s projections come as the Pentagon and defense firms are just coming to grips with the notion that sequestration likely is here to stay into next decade. But the calls for additional deficit-paring measures to avoid the CBO-predicted level, which might include more defense cuts, already have begun.

“The latest budget numbers show that while we are experiencing a temporary improvement to our deficit problems, long-term debt trends remain very troubling,” Maya MacGuineas of the nonpartisan group Fix the Debt said in a statement. “What’s more, the numbers will likely be even worse after 2024 if we don’t take action soon on tax and entitlement reform.

“The [CBO] analysis makes it clear that this is no time to put new policies on the nation’s credit card or use phantom savings,” MacGuineas said. “Instead of patting themselves on the backs for modest improvement in the near term, policymakers should be using this period of relative calm to make real progress on our long-term fiscal challenges.”

To head off the CBO projection, a fiscal “grand bargain” deal would be required. But multiple lawmakers on both sides of the aisle have told Defense News that such a big deal is unlikely while President Obama is in office, given Republicans’ collective opposition to his proposal of a “balanced approach” that includes some new federal revenues.

Email: jbennett@defensenews.com.

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