Jun 22 2011
“The CBO data also reaffirms that our surging debt is being spurred by excessive spending and insufficient growth—not because Washington isn’t taxing enough—and that excessive government borrowing is already slowing economic growth… If CBO’s long-term projections come to pass, America as we know it will be in peril.”
WASHINGTON—U.S. Sen. Jeff Sessions (R-AL), Ranking Member of the Senate Budget Committee, commented today on the 2011 Long-Term Budget Outlook released by the Congressional Budget Office, which highlights the growing danger posed by America’s debt and the need to take swift action. While House Republicans have scheduled a hearing tomorrow on the report, Senate Democrats have not, nor have they produced a budget this year or passed on in 784 days:
“Over the last two and a half years, the nation’s debt has dramatically worsened. Gross federal debt is expected to equal 100 percent of our economy in just three months—well past the 90 percent threshold identified by economists Rogoff and Reinhart as when debt begins to severely undermine economic growth. Studies show this may result in at least a million lost jobs a year.
But today’s long-term outlook from the CBO reveals that situation is even more dangerous than many realize. Our nation’s debt, driven by years of overspending, threatens us with a Greece-like calamity. CBO’s unnerving projections, released 784 days since the Democrat-led Senate has passed a budget, paint a sobering picture of what will occur if we do not act immediately to bring our spending under control. The CBO data also reaffirms that our surging debt is being spurred by excessive spending and insufficient growth—not because Washington isn’t taxing enough—and that excessive government borrowing is already slowing economic growth.
Here are a few of the report’s most troubling conclusions. By the year 2035:
• Our public debt will be double the size of our nation’s GDP
• Government spending will consume one-third of our entire economy
• Annual interest payments will increase nine-fold by 2035, from 1 percent of GDP today to 9 percent of GDP by 2035
• Entitlement spending will increase from 10 percent of GDP in 2011 to 15 percent of GDP in 2035
It gets worse. If we don’t make changes now, we won’t even reach this dismal future point on the course laid out. As Federal Reserve Chairman Ben Bernanke stated earlier this year:
‘The CBO projections, by design, ignore the adverse effects that such high debt and deficits would likely have on our economy. But if government debt and deficits were actually to grow at the pace envisioned in this scenario, the economic and financial effects would be severe.’
Today’s report only further highlights the Democrats’ inexcusable refusal to pass a budget in 784 days, during which time we’ve spent more than $7 trillion. Making matters worse, Democrats haven’t scheduled a hearing to discuss this outlook—a hearing the GOP-led House Budget Committee has planned for tomorrow—another stunning decision in a time of fiscal crisis. I hope it’s a decision they will reverse.
If CBO’s long-term projections come to pass, America as we know it will be in peril. Leaders in the White House and Congress must address this situation with the honesty, urgency, and transparency it demands.”
Federal Spending Projected To Soar Far Above Historical Average
Federal spending, under CBO’s “current policy” scenario, is projected to increase to 34 percent of gross domestic product (GDP) by 2035, with interest payments on the debt alone reaching 9 percent of GDP in that year. Interest would therefore exceed what the U.S. spends today on Medicare and Social Security combined. By contrast, the 40-year average for U.S. spending is 20.8 percent.
Historic Spending Will Lead To Historic Debt
The U.S. is on track to have annual deficits equaling 16 percent of GDP by 2035, and to push federal debt to levels unprecedented in the United States. Debt would exceed 200 percent of GDP by 2037. However, CBO notes that these estimates may well be conservative, given its approach to the projections omits the pressures such a rise in debt would have on real interest rates and economic growth.
CBO Believes Keeping Bush Tax Cuts Would Have A “Positive Effect”
CBO’s alternative fiscal scenario assumes, among other things, that the Bush tax cuts are extended for everyone. From this, CBO estimates that “a positive effect on saving and investment from the lower marginal tax rates on capital (relative to those assumed for the economic benchmark) in the alternative fiscal scenario. That positive effect on investment tends to increase the capital stock, output, and pretax wages compared with what they would be without the effect.” (p. 29) Therefore, the CBO report suggests the U.S. must get its debt problem under control, but that the economy benefits from low tax rates. Spending reductions, not tax hikes, are needed.
CBO Projects Huge Increase In Debt Relative To Last Year
CBO now projects that debt held by the public would exceed 100 percent of GDP by 2021. This is a 10 percentage point increase in debt relative to CBO’s projections of only one year ago. Debt held by the public is only a fraction of gross federal debt, which is nearly 100 percent of GDP already. Studies show that gross debt levels above 90 percent of GDP slow economic growth by at least one percentage point, which translates into 1 million jobs annually, according the president’s Council of Economic Advisors. U.S. gross debt has already crossed that 90 percent threshold, and currently is at roughly 95 percent of GDP.