July 16, 2014

CBO: Trillions in New Debt Headed Our Way

CBO says at least $7.6 trillion over 10 years, but probably more – unless things change.

The Congressional Budget Office released its 2014 Long-Term Budget Outlook this week, and, predictably, the picture isn’t pretty. We haven’t heard much about the debt since the February deal to suspend the debt ceiling, as crisis after crisis dominates the news. But recall Democrats foisted record deficits on the country between 2009 and 2012, effectively setting a new minimum for federal spending. Then they hiked taxes to pay for their spendthrift ways. It’s a recipe for economic stagnation.

The CBO reports, “Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing its debt to soar. The total amount of federal debt held by the public is now equivalent to about 74 percent of the economy’s annual output, or gross domestic product (GDP) – a higher percentage than at any point in U.S. history except a brief period around World War II and almost twice the percentage at the end of 2008.”

So how much debt will we accrue over 10 years? There are two figures – one is a projected $7.6 trillion, but an alternative fiscal scenario puts the figure $2 trillion higher.

Projecting the budget for future years is a difficult, if not impossible, task, given that future Congresses and presidents can change the budget. But the CBO assumes current law remains “generally unchanged in the future.” If that’s the case, “federal debt held by the public would decline slightly relative to GDP over the next few years, the CBO projects. After that, however, growing budget deficits would push debt back to and above its current high level.” Primarily, that’s due to unbridled growth in entitlement spending. The CBO calls this “a trend that could not be sustained indefinitely.”

Worse, the CBO says “the high and rising amount of federal debt that CBO projects under the extended baseline would have significant negative consequences for both the economy and the federal budget.”

Much has to be done to stop the trend, which the CBO notes will be exacerbated by “an aging population, rising health care costs, and an expansion of federal subsidies for health insurance [that] would cause spending for some of the largest federal programs to increase relative to GDP.” It’s fair to say, however, that the CBO isn’t pessimistic enough, because ObamaCare’s actual price tag – like all federal behemoths – will be far higher than anyone anticipates.

While the federal government is currently enjoying record revenue produced in part by Barack Obama’s higher tax rates gouging many taxpayers, that will inevitably fall off as economic behavior shifts to account for the change. The hikes were enacted in January 2013, but much of the effects were delayed until filing taxes this year. Could it be why first quarter GDP declined?

The level of debt loaded on us by our representatives in government is not responsible or sustainable. But until voters step up and say no to politicians who promise the most goodies, the federal behemoth will continue to devour too much of our resources.

> Update: American Enterprise Institute’s James Pethokoukis writes, “[E]ven though revenue will rise 6 percentage points over historical levels, spending will rise by 16 points over historical levels. Record tax revenue, but also record spending. As I said, there’s your trouble.”

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