Surprise CBO report: United States on an "unsustainable" budget course

Here’s some oh-so-pleasant news to keep in mind as Democrats casually insist that we should simply raise the debt ceiling again and again and again, with no end in sight, and fiercely rip Republicans for even daring to suggest budget cuts to federal programs.

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Congressional budget analysts on Tuesday issued a 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.

But CBO cautioned that long-term challenges remain. It warned that 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.

While sequestration and Americans’ record-high tax revenue has had a mitigating impact in the near term — news on which the White House has been quick to seize — the entitlement implosion is still stubbornly looming in the future (particularly the incoming strain on Medicare and Social Security) while we accomplish approximately zero in addressing it.

What’s more, as James Pethokoukis points out at AEI, the debt itself is hardly the long and short of it. The CBO notes that the above forecast didn’t factor in “the harm that growing debt would cause to the economy,” and, well…

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And when you take into account stuff like how deficits might “crowd out” investment in  factories and computers and how people might respond to changes in after-tax wages, you find the debt is much, much larger, closer to 200% of GDP.

The CBO:

“Projected budgetary outcomes under the extended alternative fiscal scenario are worsened by the economic changes that result from its policies. With the effects of lower output and higher interest rates incorporated, federal debt held by the public under the extended alternative fiscal scenario would reach 190 percent of GDP in 2038—about 80 percentage points greater than that under the extended baseline with economic feedback— according to CBO’s central estimates.”

I.e., the side effects of our mounting debt and burdensome policies will continually, directly, and increasingly contribute to economic losses. This is not some distant pain in the neck we can worry about in the future — we need to worry about this now.

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