By: Robert Schroeder
September 17, 2013
WASHINGTON (MarketWatch) — Congressional budget analysts on Tuesday issued a stark new warning about the long-term U.S. budget outlook, just as lawmakers and the White House are staring at a pair of fiscal confrontations.
The nonpartisan Congressional Budget Office said that the U.S. national debt is now 73% of gross domestic product, the highest in history except for a period around World War II. The figure is twice the percentage it was at the end of 2007. Read the CBO report.
Modestly lower spending, an improving economy and increased collection of income, payroll and corporate taxes have helped narrow the government’s deficit this fiscal year. If current laws remain in place, CBO said, the debt will decline “slightly” relative to GDP over the next several years — totaling 68% of the economy by 2018.
But CBO cautioned that long-term challenges remain. It warned that under current law, growing future deficits will push the debt to 100% of GDP 25 years from now. And under another scenario that envisions changes being made to some laws — including removing the so-called automatic budget cuts known as the sequester — the debt would be even higher, at nearly 190%, by 2038.
“The federal budget is on a course that cannot be sustained indefinitely,” CBO director Douglas Elmendorf told reporters.
“Because federal debt is already unusually high relative to GDP, further increases in debt could be especially harmful,” the CBO report said. It said lawmakers would have to make “significant changes” to tax and spending policies to put the U.S. budget on a sustainable path for the long term.
The report arrives less than two weeks before the end of the current fiscal year, as the U.S. nears its debt ceiling. Without a new spending measure for the budget year that begins Oct. 1, the government would partially shut down for the first time since 1996.
Treasury Secretary Jack Lew, meanwhile, said last month that the U.S would hit its borrowing limit in mid-October.
President Barack Obama on Monday urged Congress to agree on a budget and avoid a debt-ceiling battle that would harm the U.S. economy. He said he wouldn’t give in to Republican demands to raise the $16.7 trillion debt limit.
“I will not negotiate over whether or not America keeps its word and meets its obligations,” Obama said in a speech marking the five-year anniversary of the financial crisis. “I will not negotiate over the full faith and credit of the United States.”
Republicans are trying to push through more spending cuts and delay or defund the president’s signature health-care law.
“CBO’s latest report serves as yet another warning that Washington must act now to rein in our massive deficits and debt, which are hurting our economy, costing jobs and jeopardizing the American Dream for our kids and grandkids,” House Speaker John Boehner said in a statement.
Budget deficits will gradually rise again under current law, CBO said, mainly because of rising interest costs and growing spending for Social Security, Medicare and Medicaid.
The report said spending for those entitlement programs will cost 14% of GDP by 2038, or twice the average of the past 40 years.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement that those entitlements will need to be dealt with to rein in government costs.
“However you cut the numbers, we are on a path we simply cannot afford and will eventually need to come to terms with the growing costs of Social Security, Medicare and Medicaid,” she said.
The nonpartisan CBO began long-term budget projections back in 1996. That year, they said that debt by 2015 would be either 78% or 83% of GDP, depending on what assumptions were used. Now, the CBO is forecasting a ratio of 72% of GDP.