By Wesley Coopersmith
This is part of a series on the new CBO report on the Budget and Economic Outlook. This post focuses on the debt and deficit.
This past Tuesday the non-partisan Congressional Budget Office (CBO) issued its latest report on the current and projected outlook of America’s fiscal state. One of most troubling developments to emerge from the CBO’s report is that the federal deficit and debt will continue to increase unsustainably over the next decade. If the President is unwilling to rein in mandatory spending by enacting real entitlement reform, America’s economic future will remain in the balance.
In the new report, CBO projects that the deficit will decrease for the next two years under the Obama’s administration to 2.5 percent of GDP. This is largely due to higher taxes under the Obama Administration and pressure from House Republicans to reduce spending growth. Although this smaller deficit is good news in the short term, CBO expects the deficit to increase back up to 4 percent of GDP by 2024. In fact, CBO raised its previously projected estimate of cumulative deficit by $1 trillion over the next ten years, signaling that Washington’s current spending problem will become an even bigger problem
Revenue is not the problem. CBO projects that the federal government will bring in more revenue this year than it has historically. Driving the deficit is mandatory spending on entitlement programs. For example, over the next ten years, spending on Medicaid expansion and federal health insurance subsides will cost close to $1.8 trillion. The federal government simply does not have this kind of money available so their solution is to borrow more. This is why the federal debt won’t look any better over the next decade.
By 2024, CBO estimates that the percentage of publicly held debt will jump from 74 percent of GDP to 79 percent. To put this in perceptive, in 2007, publicly held debt equaled 35 percent of GDP. We would have to go back to WWII to find numbers as bad as what CBO projects within the next ten years. The unsustainable amount of federal debt occurring under the President’s watch will have the effect of restraining long term economic growth, projected to slow to 2 percent by 2017.
The kind of future our current government is creating will directly hurt the everyday hardworking American. People who want to find a job will find it increasingly difficult under the picture painted by the CBO report. Small businesses that want to expand will be faced with more and more uncertainty. The President and Congress must act now to get our fiscal house in order.