The Congressional Budget Office painted a sober picture of the nation’s long-term fiscal path in its 2014 Long-Term Budget Outlook, released Tuesday.
If current laws remain generally unchanged, the nonpartisan CBO projects that the total amount of federal debt held by the public — already one of the highest percentages in U.S. history at 74% of the gross domestic product — would exceed 100% of GDP by 2039, 25 years from now.
“Beyond the next 25 years, the pressures caused by rising budget deficits and debt would become even greater unless laws governing taxes and spending were changed," the CBO says. "With deficits as big as the ones that CBO projects, federal debt would be growing faster than GDP, a path that would ultimately be unsustainable.”
The CBO attributes this rising debt to growing budget deficits, caused by spending for Social Security and health care entitlements.
“The combination of three factors — the aging of the population, growth in per capita spending on health care, and an expansion of federal subsidies for health insurance — is expected to significantly boost the government’s spending for Social Security and major health care programs,” the CBO reports. “Barring changes to current law, that additional spending would contribute to larger budget deficits toward the end of the 10-year period that runs from 2015 to 2024, causing federal debt, which is already quite large relative to the size of the economy, to swell even more.”
The report shows federal spending, under current law, increasing to 26% of the size of our economy by 2029, compared with 21% in 2015 and an average of 20.5% over the past 40 years. According to the report, federal spending for “Social Security and the government’s major health care programs—Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through the exchanges created under the Affordable Care Act — would rise sharply, to a total of 14% of GDP by 2039, twice the 7% average seen over the past 40 years.”
Sen. Orrin Hatch, R-Utah, called the CBO report a "stark reminder of the urgent need for entitlement reform."
"As CBO says, our current spending path is unsustainable,” Hatch, ranking member of the Senate Finance Committee, said in a statement.
The short-term budget view is a little more positive. For the second quarter, the government posted its first quarterly surplus since 2007, and it is on track to post the smallest annual deficit since 2008, according to a recent Treasury report.
“The federal budget deficit is shrinking noticeably this year, and the CBO projects that the deficit will remain roughly stable as a share of the nation’s output — its gross domestic product (GDP) — for the next several years,” according to the CBO’s projections. The CBO projects the federal debt held by the public would decline slightly relative to GDP over the next few years.
But the the Bipartisan Policy Center cautions that the picture gets darker.
“Relatively constant or even shrinking debt over the next several years should not be taken as a sign that the long-term budget picture is improving," it said. "The budget outlook deteriorates significantly beyond the 10-year window.”
To curb this path of unsustainability, the CBO suggests significant changes to tax and spending policies, such as “reducing spending for large benefit programs below the projected levels, letting revenues rise more than they would under current law, or adopting some combination of those approaches.”
Said Sen. Rob Portman, R-Ohio:
“When it comes to the real fiscal problems we face, when it comes to the mandatory spending that is driving our country towards bankruptcy and threatening to undermine programs like Social Security, Medicare, and Medicaid — on which millions of Americans rely — we have done nothing. Today’s report is another reminder that we cannot continue to kick the can down the road. We need reform, and we need it now.”
House Rep. Whip Steny H. Hoyer, D-Md., said in a statement that the CBO’s outlook “ought to be a stark reminder that Congress must work together to promote fiscal sustainability over the long term.”
“If we fail to do so, demographic changes and interest payments will cause our debt to continue to rise as a share of our economy, crowding out investments in economic growth and the creation of jobs,” he said. “The result will be fewer opportunities for American families.”
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