|
|
The
Committee for a Responsible Federal Budget has an interesting report on the
Long Term Budget Outlook as
reported by the Congressional Budget Office. Let's take a look.
Last
week, the Congressional Budget Office (CBO) released its Long-Term Budget
Outlook. The reports suggests a brief window in which deficits subside a bit,
after which the effects of health care cost growth and population aging will
drive them rapidly upward and bring the national debt to unprecedented and
intolerable levels.
Under current law, CBO projects debt held by the
public will rise from less than 40 percent of GDP before the economic crisis
to nearly 100 percent by 2040 and 300 percent by 2083. If current policies
are continued, CBO projects the debt will rise to 100 percent by the early
2020s, to 200 percent before 2040, and eventually to 750 percent.
Ultimately, revenue increases and/or spending cuts will be necessary to
prevent “a vicious cycle in which the government had to issue
ever-larger amounts of debt in order to pay ever-higher interest
charges.”
Ever-Growing Deficits
If we continue on our current path, according to the CBO, deficits will
persist and grow, driving public debt to untenable levels. The CBO makes two
sets of long-term projections: the “extended baseline scenario,”
which essentially assumes current law, and the “alternative fiscal
scenario,” which assumes policy makers continue a number of current
practices such as maintaining physicians payments in Medicare, continuing to
patch the Alternative Minimum Tax, renewing the 2001/2003 tax cuts, and
allowing discretionary spending to grow with GDP rather than inflation over
the next decade.
Rising deficits are caused by spending growing considerably faster than
revenue. Projected spending increases come mainly from the growth of Medicare
and Medicaid, and to a lesser extent Social Security.
Although a relatively small portion of our budget today at 1 percent of GDP,
interest on the debt would grow to consume 12 percent of GDP by 2080 under
CBO’s baseline scenario or 30 percent under its alternative scenario.
Of course, even the baseline scenario displayed below would be unlikely to
occur, since investors and lenders would not allow the United States to
accumulate such high levels of debt. But this projection represents the
magnitude of the gap that must be closed.
Ultimately, the long-term budget outlook will necessitate serious tax and spending
changes. Absent such changes, we face the real threat of a fiscal and
economic crisis more severe than what we've already endured.
There are more
interesting charts in the article including one on Factors Impacting Growth
of Medicare, Medicaid, and Social Security.
To say that the present course is unsustainable is putting it mildly.
Spending cuts are mandatory. However, neither the Obama administration nor
Congress has gotten the message. Nor has the Free Lunch Society of which Paul
Krugman is the high priest.
Mish
GlobalEconomicAnalysis.blogspot.com
| |
