Lawmakers Taking United States Down The Road To Financial Ruin – Federal Debt To Double In 15 Years Unless Congress Changes Course On Spending And Taxes

June 5, 2012

WASHINGTON, DC – The federal government is staring at a disastrous fiscal picture with debt approaching 200 percent of GDP within two decades if Congress doesn’t change course on spending and taxes, according to the latest analysis by the Congressional Budget Office released Tuesday.

The CBO said it’s the worst picture since a brief period during World War II when spending ballooned to fund the military campaign.

“In the past few years, the federal government has been recording the largest budget deficits since 1945, both in dollar terms and as a share of the economy. Consequently, the amount of federal debt held by the public has surged,” the CBO report said in a long-term budget outlook that paints a shockingly dark picture of government finances.

CBO analysts said the downturn and Congress’s response have been devastating for the government. Federal debt as a percentage of GDP — a standard measure of a government’s debt burden — stood at 40 percent at the end of 2008. But it will top 70 percent by the end of this year, and is only headed higher unless Congress changes course. The ratio could double by the middle of the next decade and will have topped 200 percent of GDP — twice the size of the projected U.S. economy — by 2037.

At that level, fiscal catastrophes are more likely, and the government’s ability to respond becomes far more constrained.

The increases in federal spending will come chiefly from higher interest payments and health care costs. Federal spending on health will nearly double from about 5.4 percent of GDP to 10.4 percent by 2037, according to Tuesday’s report.

Ironically, the nonpartisan budget agency said the deep deficits and debt are not inevitable. If Congress would step out of the way and allow the laws currently on the books — including ever-deeper spending cuts and potentially devastating tax increases — to go into effect, federal debt would begin to shrink almost immediately as a percentage of the economy, as measured by GDP.

But President Obama and lawmakers on Capitol Hill have been reluctant to let the law take its course. Instead, the GOP has fought to permanently extend lower tax rates due to expire, and Democrats have defended existing spending and in many instances called for new spending.

That’s left the country bumping along with deficits of $1 trillion or more each of the last three years. Yet with the economy still weak, lawmakers remain paralyzed as they try to figure out how to act over the long term without harming the economy now.

The budget agency said that may not be possible.

“On the one hand, cutting spending or increasing taxes slowly would lead to a greater accumulation of government debt and might raise doubts about whether longer-term deficit reduction would ultimately take effect,” the CBO report said. “On the other hand, abruptly implementing spending cuts or tax increases would give families, businesses, and state and local governments little time to plan and adjust, and would require more sacrifices sooner from current older workers and retirees for the benefit of younger workers and future generations.”

The report produced hand-wringing and finger-pointing on Capitol Hill.

“The president’s policies are not working,” said House Budget Committee Chairman Paul D. Ryan, Wisconsin Republican. “The sobering reality of our economic challenges require leadership and action. The president and his party’s leaders have failed on both counts.”

But House Minority Whip Steny H. Hoyer, Maryland Democrat, said the primary hurdle is the GOP’s demand that spending cuts fuel any debt solution.

“CBO’s report is a warning that we must get our fiscal house in order by achieving big and balanced deficit reduction that includes both spending and revenues,” he said. “Cutting domestic spending alone won’t work, and it will require both parties working together.”

The CBO’s analysis is a look at long-term budget and economic factors, and gives some interesting snapshots about how both the budget and the economy will change.

Among the agency’s assumptions is that the U.S. population will reach 389 million in 2037 and top 500 million in 2087, with the population skewing ever older.

And older workers tend to work fewer hours, meaning that by 2087 the average number of hours worked per employee in the workforce will be about 2 percent less than in 2022.

The report also projected that the growth in the labor force will slow, keeping economic growth to an average of 2.2 percent over the long-term. But the interest rate on debt will be higher, at an average of 2.7 percent — a reversal from recent years, when economic growth and interest rates were about the same.

The non-partisan scorekeeping agency also put an exact price on the deficit when it comes to savings, saying that for each dollar the deficit rises, national savings is reduced by between 32 cents and 72 cents, and domestic investment is reduced by between 10 cents and 50 cents.

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Pending Fiscal Crisis – Tax Increases And Spending Cuts On The Near Horizon – Congress To Decide How US Can Best Continue Spending Money It Doesn’t Have

May 23, 2012

WASHINGTON, DC – For Congress, the outlines of the pending fiscal crisis are clear: Don’t do a thing, and watch the economy slip into a double-dip recession early next year. Or cancel the looming tax increases and spending cuts, watch the deficit rise, and push the government ever closer to a European-style debt crisis.

That decision was put in stark terms Tuesday by the Congressional Budget Office, which in a new analysis said the economy will plunge into a recession early next year if Congress lets taxes rise and spending be cut, as called for under the law.

But if Congress changes the law to keep taxes low and spending high, it could add more than half a trillion dollars to the deficit in 2013, marking a fifth straight year of trillion-dollar deficits and risking the patience of the country’s creditors.

The CBO numbers come just as the debate is heating up on Capitol Hill over how to handle the looming “fiscal cliff,” which Congress created by continually pushing off tough decisions on both taxes and spending.

Senate Majority Leader Harry Reid, Nevada Democrat, signaled Tuesday that he will allow the automatic spending cuts called for in last year’s debt deal to go into effect — culling billions of dollars from defense and domestic spending — unless Republicans agree to allow taxes to increase on at least some taxpayers.

“If Republicans want to walk away from the bipartisan spending cuts agreed to last August, they will have to work with Democrats to replace them with a balanced deficit-reduction package that asks millionaires to pay their fair share,” Mr. Reid said.

Republicans remain adamant that the lower income- and investment-tax rates passed in 2001 and 2003 under President Bush, and extended in 2010 under President Obama, must be extended again.

“No economy can sustain such a hit without being hurled into recession,” said Sen Orrin G. Hatch, the ranking Republican on the Senate Finance Committee, which oversees tax policy.

One thing both sides say they agree on, however, is the need to act now.

Last week, House Speaker John A. Boehner kicked off the conversation, drawing a line in the sand in saying that he won’t allow another increase in the federal government’s debt ceiling unless it’s matched dollar-for-dollar with future spending cuts — just as the 2011 debt deal was.

Mr. Boehner also signaled he was open to ending some special tax breaks, as long as the money was used to bring down tax rates for everyone. He acknowledged there would be some who would pay more and some who would pay less.

But Democrats said much of the extra money the government would generate by closing those loopholes should go to funding the promises already made on spending, such as Social Security, Medicare and regular domestic spending.

The government was projected to see a large surplus at the end of the Clinton administration, but several economic downturns, two wars, several rounds of tax cuts and trillions of dollars in new domestic spending erased the surplus and have left the government deeply in debt: $15.715 trillion as of Monday.

And for the past three years, as political gridlock has become the rule in Washington, lawmakers have put off decisions on cutting spending or raising taxes, leaving everything to bite at the beginning of 2013.

The list of expiring laws reads like a taxpayer’s worst nightmare: The alternative minimum tax would bite ever deeper, last year’s 2-percentage-point payroll-tax cut would disappear, business-investing tax breaks would end, and almost all of the 2001 and 2003 tax cuts would expire. Meanwhile, some tax increases from Mr. Obama’s health care law are slated to begin biting in January.

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Keep Spending: Public Debt Explodes Under Obama “Leadership” – Reaches Record Highs With No End In Sight

March 17, 2012

WASHINGTON, DC – The Congressional Budget Office said Friday that President Barack Obama’s tax and spending policies will yield $6.4 trillion in deficits over the next decade, more than double the shortfall in CBO’s own fiscal baseline — even after taking credit for reduced war costs.

House Republicans, slated to unveil their own plan next week, are sure to seize on the numbers, yet the mountain of data gives reason for both parties to pause going into what’s expected to be a major fiscal crisis after the November elections.

The GOP has been quick to fault Obama for excess spending. But more than three-quarters of the $3.5 trillion in added red ink can be explained by what is still a rich diet of tax breaks continued by the president — but not under the CBO’s baseline.

(See also: CBO’s estimate of repealing IPAB is a head-scratcher)

Indeed, in the case of discretionary appropriations, CBO scores the president as coming in about $4 billion under the $1.047 trillion target set by the Budget Control Act last summer. And within these confines, the biggest discrepancy is that his budget is $2 billion over the caps for security programs at the expense of domestic priorities.

Administration officials Friday took heart that CBO credited Obama’s plan with bringing future deficits down to 3 percent of GDP. In fact, the $6.4 trillion cumulative 10-year shortfall shown by CBO is under the $6.7 trillion forecast by the White House in its own documents in February. And measured against a rough proxy for current policy, the report lends at least partial support to the White House claim of up to $4 trillion in deficit reduction over 10 years.

“CBO found that by 2016 deficits as a share of the economy would be below 3 percent – a key milestone of fiscal sustainability,” said Jeff Zients, director of the Office of Management and Budget. “It found that after implementing the president’s budget, debt held by the public will decrease and then stabilize as a share of the economy, also a key indicator of improving fiscal health.”

But all these deficit reduction numbers come with some important caveats regarding how to treat hundreds of billions in war savings as well as automatic spending cuts due to take effect in January. And even if Obama were to get his way on all fronts, the outlook remains grim.

The federal debt held by the public would still nearly double again from $10.1 trillion at the end of 2011 to $18.8 trillion at the end of 2022. For the current fiscal year ending Sept. 30, CBO is now projecting a shortfall of $1.3 trillion. In fiscal 2013, the deficit will still hover near the $1 trillion mark — about $977 billion. And while it will fall to 2.5 percent of GDP by 2017, it then begins to grow again to 3 percent of GDP by 2022.

To be sure, CBO’s baseline isn’t perfect as a standard against which to measure fiscal decisions.

The nonpartisan office is bound by rules that require it to assume that all of the Bush-era tax cuts will end in December, for example. At the same time, it must build-in spending assumptions that major health programs like Medicare and Medicaid continue to grow unchecked.

House Budget Committee Chairman Paul Ryan (R-Wis.) is determined to bend this spending curve and shows every sign of wanting to renew his call next week for historic, long-range changes in both healthcare programs. At the same time, Republican presidential candidates are demanding still greater tax cuts than even former President George W. Bush envisioned and this complicates any hope of producing substantial deficit reduction.

For example, CBO estimates that Obama’s budget will cut revenues by $2.35 trillion below its baseline, but that assumes he also gets about $1 trillion in tax increases that many in the GOP oppose. Not counted in these totals is another $366 billion in refundable tax credits, which CBO scores as outlays on a separate table.

Altogether, in fact, the disparities between the CBO baseline and Obama’s budget on the spending side are much smaller. The administration appears to benefit from several technical assumptions used in the scoring, and CBO gives Obama $810 billion in credit for savings attributed to pulling troops out of Iraq and future reductions in Afghanistan.

At the same time the president is “charged” $979 billion for his budget’s assumption that across-the-board cuts can be forestalled in January. But even with this, the real added spending in his budget has more to do with interest on the mounting debt than any new initiative.

“Today’s analysis serves as a disappointing reminder of this administration’s broken promises and failed leadership when it comes to averting the most predictable economic crisis in our history,” Ryan said in response to the CBO numbers. “When it comes to our generation’s greatest challenges, the President refuses to take accountability or demonstrate much-needed leadership.”

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