Debt is on an unsustainable course, projected to hit its highest level as a share of economic output in the nation’s history, according to the Congressional Budget Office’s director in testimony on Tuesday before the Senate Budget Committee.
Because of the looming projections, the specter of a financial crisis and loss of confidence haunted the discussion during the committee hearing on the CBO’s 10-year budget and economic outlook.
CBO Director Keith Hall warned lawmakers that if debt rises to the amounts that CBO projects, there will be troubling consequences, including an increase in the chances of a fiscal crisis in the U.S.
CBO projects debt equal to 93% of gross domestic product by 2029 and about 150% of GDP by 2049. At year-end 2018, it stood at 78%.
The average deficit over the next 10 years is 4.4% of GDP, a number both large and unusual for times of low unemployment, according to Hall.
Fueling these dire projections are labor market growth slowdown, the aging population and benefits in trust funds like Social Security and Medicare benefits. In fact, Hall projects that by 2027, federal disability funds will be exhausted.
“Trillion-dollar deficits are in sight, they are real,” said Committee Chairman Mike Enzi, R-Wyo. “When you have $22 trillion in debt, Congress needs to start putting solutions on the table.”
Senators used the warnings to discuss immigration reform and the potential to add to labor growth with merit-based immigration programs that are seen fueling productivity.
Senators suggested cutting benefit programs because raising taxes across the board still would not cover the deficit.
Sen. Mike Braun, R-Ind., suggested the answer could be big spending cuts. “We have a spending problem. … You can’t tax your way out of this. It is more about backbone and fortitude,” Braun said.
CBO’s Hall shot down one lawmaker’s trial balloon suggestion to have the government print more money. He characterized it as untenable, possibly leading to higher inflation, lower wages and a greater likelihood of a financial crisis.
The afternoon hearing ended with senators requesting projections on how immigrants allowed into the U.S. based on merit, not families, can help grow the economy by adding to productivity and the workforce, while acknowledging the slowdown in housing.
There were no outright calls from senators for new laws, which Hall stressed would be necessary to change the course of the debt’s impact on the future.
To start righting the deficit’s course, “lawmakers will have to make significant changes to tax and spending policies — making revenues larger than they would be under current law, making spending for large benefit programs smaller than it would be under current law, or adopting some combination of those approaches,” Hall testified.