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  • CBO Long-Term Budget Report: Our Dire Fiscal Situation

    Today’s release of the 2011 Long-Term Budget Outlook by the Congressional Budget Office (CBO) yet again confirms what we already know: America’s budget is continuing down an unsustainable path, and the longer we wait to address this problem, the more painful the policy fixes will have to be.

    The CBO presents its results under two sets of assumptions, and while the assumptions differ, the bottom line result is the same: Spending continues to spiral out of control and the increase in the nation’s debt would be catastrophic.

    Under the more likely alternative fiscal scenario:

    • Debt reaches 101 percent of GDP by 2021—two years earlier than last year’s outlook reported—and would, if markets permitted it, shatter the 200 percent mark in 2037;
    • Interest on the debt jumps from 1.4 percent to 4.4 percent of GDP in 10 years and reaches 8.9 percent by 2035;
    • Total spending remains well above its historical average of 20.3 percent, rising to nearly 26 percent of GDP by the end of the decade; it surges to 33.9 percent by 2035, climbing inexorably higher after that;
    • Taxes return to their historical average of 18 percent of GDP by 2017 and then rise to 18.4 percent.

    Even CBO’s more modest extended baseline scenario casts a gloomy shadow over the nation’s fiscal picture. Our ever-accumulating debt surpasses two-thirds of the economy by 2021 and hits 84 percent by 2035. Federal spending continues to exceed federal revenues by an average of about four percentage points over the next 10 years.

    If that’s not bad enough, our fiscal crisis is actually worse than the report shows. CBO models do not take into account changes that happen in the economy and the lives of ordinary Americans. The Director’s Blog on the report states that the projections “understate the severity of the long-term budget problem because they do not incorporate the negative effects that accumulating additional federal debt would have on the economy, nor do they include the impact of higher tax rates on people’s incentives to work and save.”

    More bad news in the report? Rising levels of debt, like those found in the President’s budget, have other “negative consequences,” including increased interest rates and the likelihood of a “sudden fiscal crisis during which investors lose confidence in the government’s ability to manage its budget.”

    No surprise either is that the growth in spending is attributed to an aging population and growing health care spending—in other words, the lack of Medicare, Medicaid, and Social Security reforms. Health care spending (Medicare, Medicaid, SCHIP, and the Obamacare subsidies) increases from 5.6 percent of GDP in 2011 to 7.1 percent in 2021 and to 10.3 percent by 2035.

    Meanwhile, Social Security spending rises from its current level of 4.8 percent to 5.3 percent of GDP by 2021 and hits 6.1 percent by 2035. The three major entitlement programs account for nearly 48 percent of total spending by 2021, up from 43 percent. Clearly these trends cannot continue.

    The decisions of the President and his Senate ally Harry Reid to put off fixing our nation’s spending problem and stabilize the debt is only making matters worse. When someone has a serous illness and holds off on seeing a doctor, he or she only grows more ill and requires a more drastic and potentially painful cure. In the same way, so does delaying action on getting spending and the debt under control further weaken the economy, stifle job growth, and injure investor confidence. And, as CBO starkly reports:

    Waiting to close the fiscal gap would make the necessary changes larger.… Postponing action would substantially increase the size of the policy adjustments needed to put the budget on a sustainable course.

    In other words, the longer Congress dithers, the larger and more draconian the fixes must be.

    CBO’s findings tell the nation what it already knows and what voters are demanding: Tough decisions must be made to cut spending, reform the entitlement programs, and return to a habit of responsible budgeting in Washington. Solutions in The Heritage Foundation’s Saving the American Dream would do just that. The economic security of our seniors and the economic freedom and opportunity of future generations depend on Washington making such wise decisions. Americans today deserve—and expect—nothing less.

    Posted in Economics [slideshow_deploy]

    9 Responses to CBO Long-Term Budget Report: Our Dire Fiscal Situation

    1. Stirling says:

      CBO is just confirming what Main street USA has already known since our president's policies were inacted. This is just the "Fundemental Transformation" which we were promised. People just didn't realize our economy had to be sacraficed to be transformed.. Thanks Obama, job well done..

    2. Richard says:

      David – You may want to double check. The data I found says Coolidge balanced his annual budgets, but did NOT pay off the national debt.

    3. David Beiler says:

      Your graph is suspect. The national debt was completely paid off under Coolidge, yet the line never goes to zero in your chart, which includes that period.

      • George Colgrove, VA says:

        Coolidge may have made payments, but this nation has never been out of debt. Even Washington had some little debt. A small portion of debt is not bad – so to speak. It makes it easier for small projects and emergencies to be "paid" for for the short term. The key is, it has to be paid back, and all continuing funding for which the original debt was called for would be funded in sunsequent budgets. WWII needed $3 trillion (+/-) in 2011 dollars to fight the war. Most of this was borrowed. Right after the war, nearly all of the DoD budget was axed. In todays dollars, the budget dropped from just over a trillion to hovering around $200 billion within a year and a half. The federal government went over a period of 5 to 6 years paying off the debt substancially. This was truely the "greatest generation" both on the battle field and the restraint in the federal workforce. But after 1950, we have been in various states of national "in"security to the point we have never been in the black as far as annual budgets go until Clinton. In this case it was the GOP led congress that showed restraint.

    4. Richard says:

      David – You may want to double check. The data I found says Coolidge balanced his annual budgets, but did NOT pay off the national debt.

      To all – So what are we going to do to save our country and economy for our children and grandchildren? I suggest step one is to elect real fiscally conservative representatives at the state and federal level. Don't be misled by a party label or what they say, look at their actual record. And if they have no record (Obama) then be very very careful that you don't get sold a bill of goods.

    5. RennyG says:

      Why doesn't anyone talk about the "Alinsky Theory???" Total chaos, distruction, then takeover!!!!
      He and his czars started this the first four years and will finish it the last "four!!" The plan is there!
      He has his czars, cabinet, attorneys, senate, lawyers, judicial system, financial system, unions; who cares about the "house" and the "constitution??????" We better be on our "knees!"

    6. Richard says:

      David – You may want to double check. The data I found says Coolidge balanced his annual budgets, but did NOT pay off the national debt.

    7. RedBaker says:

      The national debt is $14.44 trillion. The GDP is $14.7 trillion. Therefore the national debt is already 98.3% of GDP, not 60-odd percent the "news media" and others claim. Why they go along with ignoring the $4.5 trillion owed to trust funds for social security and Medicare, etc., I'll never understand. We're broke right now. Cut federal spending, now. Cap spending at 18% of GDP. Adopt a constitutional amendment to handcuff Congress, because it is obvious they cannot be trusted with our money.

      • JackM. says:

        According to you, the Heritage figures are way off. Somebody doesn't know what they're talking about…and I say it's both of you. One of their "sources" cited in the fictitious chart is the Institute for the Measurement of Worth, which I believe has an office in the Department of Phony Charts.

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