DAVID GREENE, HOST:
One trillion dollars - that is where the federal budget deficit will be next fiscal year, according to the Congressional Budget Office. This growing gap between what the government takes in and what it spends has been fueled by the 2017 tax cuts, also the recent budget deal that increased domestic and military spending and, also, the chilling economic effects of tariffs.
Phillip Swagel, director of the Congressional Budget Office, delivered this news yesterday, and he joins me this morning. Thanks for coming on the program.
PHILLIP SWAGEL: Thanks, David. Good morning.
GREENE: Good morning. So when you put out the statement yesterday, you used the word challenging to describe our country's fiscal outlook. You said the federal debt is on an unsustainable course. Tell me more about why you're so concerned.
SWAGEL: We at the Congressional Budget Office project what's going to happen with federal spending and federal revenue. And the result, as you said, is the deficit, and that leads to debt accumulating over time. At some point, the debt burden on the United States will be difficult to sustain. The financing of that debt will be difficult. The effects of that debt on financial markets and, therefore, on the economy will be undesirable, right? We'll have higher interest rates that affect consumption, affect investment. That's what we mean by unsustainable.
GREENE: I mean, the economy seems so strong right now by a lot of measures. I mean, the interest rates are low. The stock market, with some, you know, some movement, is still resilient. The jobs numbers, despite a downward correction, seem pretty strong. I mean, is the deficit that much of a worry for, you know, a generally strong economy?
SWAGEL: You know, that's the challenge in the sense of addressing the fiscal situation - that, as you said, today, the economy is strong. We have low unemployment, and we have very strong wage growth. And, importantly, wage growth is especially strong for people at the bottom of the wage distribution. And interest rates are low, so there's no pressure to address the fiscal situation. This is a long-term challenge. There's no simple solution. There's no quick solution. But that's - our job is to highlight what the challenges facing the nation, including the long-term challenges, are.
GREENE: I know there are economists who always make the argument, like, stop worrying so much about the deficit - that, actually, it can be - like, worrying can be inherently bad for the economy. I mean, is there some truth to that? And what's your argument against that?
SWAGEL: OK, no, there absolutely is truth to that - that when there's a financial crisis and a recession, that countries that respond with expansionary policy do better. And it looks like the United States has the fiscal space to do that, right? Interest rates are low. The federal government is able to borrow. So this is not an immediate crisis, and our report released yesterday does not say this is a crisis. It's a long-term challenge.
GREENE: So if it's a long-term challenge, how much belt-tightening should the administration and lawmakers be considering, in terms of getting to a place where you're comfortable that the country is back on a good fiscal course?
SWAGEL: So the Congressional Budget Office supports the Congress. We provide the Congress with analysis. We don't provide policy recommendations. And, you know, that's our role. We say how much things cost. How to address it is up to the members of Congress and the administration.
GREENE: But in terms of - I know - just your number crunching role, I mean, without any belt-tightening, is there a risk that this situation could get much worse?
SWAGEL: There is. And so that's what we're trying to point out is that the fiscal changes involved are quite large, that we will have to change spending or change revenues or some mix of the two by more than 10%. So, you know, imagine if it's all on the spending side. Federal government spending, including everything - all the transfers, all the discretionary spending - everything would have to go down by more than 10%. And on the revenue side, it's the same thing. There would have to be more than a 10% increase in the revenue that the federal government collects. It's a very large change. It doesn't have to be done all at once, but that's the challenge of a fiscal adjustment.
GREENE: An election cycle is not normally the time that a president and lawmakers will make really hard decisions about belt-tightening, but you seem to be saying that even if it had to wait, like, another year, let's say for an election, it doesn't sound like it's that urgent. Is that fair?
SWAGEL: You know, this is not an immediate crisis. And, again, we see that in financial markets. Interest rates are low. And, in fact, the forecast that we just put out acknowledges that. We marked down our projection of interest rates going forward, and that has a large savings for the federal government, in terms of smaller interest payments. Even with the lower interest rates, the fiscal situation is still challenging. It's still unsustainable.
GREENE: Phillip Swagel is director of the Congressional Budget Office. Thanks so much for your time.
SWAGEL: Thank you. Transcript provided by NPR, Copyright NPR.