Congressional Budget Office report says federal deficits and debt will soar

Chris Moody Contributor
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The federal government will face crushing budget deficits and a rapidly soaring national debt unless there is a drastic change in policy over the next few decades, a federal body of nonpartisan budget analysts said Wednesday.

According to an analysis from the Congressional Budget Office, federal spending will climb to 26 percent of GDP within the next decade and reach highs of up to 35 percent by 2035. The report claims that rising health care costs combined with an aging population will lead to significant increases in federal spending, and the national debt will grow worse unless sweeping policy changes occur. The national debt is estimated to rise  as high as 87 percent of GDP in ten years, make its way to 109 percent by 2025 and could peak at 185 percent by 2035.

The report’s authors called the long-term budget outlook “daunting”, and predicted that rising costs will force policymakers to make tough decisions on where and how to cut spending.

There is little agreement on the primary cause of the deepest federal deficit — now 60 percent of GDP — since the end of World War II. Some blame record government spending while others point to American wars and Bush’s tax cuts as the culprit. But both sides agree that the country cannot sustain its current path.

David Cutler of the liberal Center for American Progress said he was not surprised by the report’s warning, and named the tax polices of the Bush Administration as one of the chief causes of the nation’s debt and deficit troubles.

“There is no way to absorb the Bush administration’s reckless tax cuts and two wars paid for on credit, prevent a depression, prepare for an aging population, and finance higher medical spending without something having to give,” he said in a written statement.

Cutler seized on the report’s findings that suggested that provisions in the new health care law that will take effect in 2014 would actually reduce deficits by as much as $140 billion over the next ten years and by more than $1 trillion in the next twenty.

But conservatives are not as quick to blame tax reductions for the federal deficit, citing CBO data that shows the Bush tax cuts did little to increase the deficit. A new report from the Heritage Foundation, a conservative think tank, makes the case that America’s enormous budget deficit has much more to do with increased non-defense spending than the 2001 and 2003 Bush tax cuts and the wars in Iraq and Afghanistan.

Brian Riedl, the author of the Heritage report, suggested that the Bush tax cuts only accounted for 14 percent of the swing from the $5.6 billion budget surplus left after the Clinton administration to a projected $6.1 trillion deficit.

“President Bush’s spending increases played a much larger role in the budget deficits” than his tax cuts, Riedl wrote in the report.  He added that the Obama administration has increased spending rates, making matters worse.

Unless Congress and the White House votes to renew the Bush tax cuts, which are set to expire at the end of this year, the change in policy would result in the resurrection of many taxes once thought to be gone forever, including the so-called marriage penalty, the death tax and would even increase taxes on low-income families.

The CBO report noted that Americans across the economic spectrum would face an uncertain future if the deficit continues down the same path.

“Large budget deficits would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower income growth in the United States,” the analysis concluded.

Recent polls suggest that those running for office in November would do well to put the federal debt and deficit on their agenda. A June Wall Street Journal/NBC News survey revealed that Americans cited deficit reduction as a top concern when selecting a candidate in 2010.