CBO report: U.S. debt will be 2x GDP by 2037
posted at 4:01 pm on June 5, 2012 by Erika Johnsen
Le sigh. Yet another study pointing to imminent fiscal calamity, while Obama & friends busy themselves trying to convince everyone that the Obama administration hasn’t actually increased spending all that much, or something. Instead of — oh, I don’t know — maybe actually doing something about it.
The new CBO report warns that increased entitlement spending driven by the retirement of the baby boomers and insufficient revenue is making the long-term outlook for the national debt increasingly dire.
Under CBO’s most likely scenario, in which lawmakers extend current tax rates and fail to curb entitlement spending, debt held by the public would reach 109 percent of the economy by 2026, and it would be almost 200 percent of GDP by 2037.
Many economists have warned that if debt held by the public approaches 100 percent of GDP, it can bring on the kind of fiscal crisis being felt in European countries today, in which governments must suddenly slash spending and lay off workers in the face of rising interest rates caused by spooked investors.
CBO’s latest prediction is roughly similar to its 2011 report, despite the $2.1 trillion in budget cuts enacted in last August’s debt-ceiling deal between the White House and Congress.
I take pretty much all government ‘estimates’ with a grain of salt — and by that, I mean that I’d usually wager the real situation is worse than the government projects it to be. The CBO report hints that current policies, especially including, ahem, the Bush tax cuts, are what’s bankrupting us, and that getting rid of said tax cuts would be a big help in bringing down the deficit — a point Democrats will assuredly use in arguing for their “balanced approach.”
But the CBO’s more dire scenario also assumes higher “outlays,” which is by far our biggest problem; the effects of the tax cuts are only a small piece of the puzzle here. The best, most effective, long-term way to boost revenue is to foster robust economic growth. Higher taxes in no way ensure correspondingly higher revenue. Maybe we should try not ignoring necessary reforms to our current entitlement programs, not sticking with policies that have our growth rate gasping for air, and then not turning around and making it rain taxpayer dollars with brand new entitlements like ObamaCare.
Here’s what House Budget Committee Chairman and all-around fiscal guru Paul Ryan had to say on the subject this morning:
“On the heels of last week’s dismal jobs report, today’s CBO report on the deteriorating fiscal situation underscores the obvious: The President’s policies are not working. The sobering reality of our economic challenges require leadership and action. The President and his party’s leaders have failed on both counts. The President’s own Treasury Secretary recently told the House Budget Committee: ‘We’re not coming before you today to say we have a definitive solution to the long-term problem. What we do know is we don’t like yours.’ The Democrat-controlled Senate has failed to pass a budget in 1,132 days – refusing to even propose a budget the past two years.
“Americans deserve better than the European-style austerity offered by the President’s broken promises and bankrupt policies. Repeating Europe’s mistakes, the President’s policies call for job-crushing tax increases and harsh disruptions for beneficiaries of government programs as the debt spirals out of control. House Republicans refuse to accept this diminished future. The House of Representatives passed a budget – The Path to Prosperity – that responsibly averts the looming debt crisis detailed in today’s CBO report. The House continues to advance solutions that foster a better environment for economic growth and job creation. CBO’s report is the latest is a series of warnings for policymakers to advance principled solutions that responsibly confront our generation’s most pressing challenges.”
The United States has the largest nominal GDP in the world by a long shot, and the thought of a having a debt twice that big is just a little daunting. It’s okay though, right? I’m sure that countries, just like banks, can qualify for “too big too fail” status. We wouldn’t let that happen. We’ll just get a bailout from… uh, from… er… uh oh.