Congressional Budget Office warned U.S. debt may exceed total economic output by 2035
Unfair tax policies that favor the wealthy combined with the growing health care needs of an aging population are driving up U.S. public debt to unsustainable levels, according to a report by the non-partisan Congressional Budget Office.
CBO Director Doug Elmendorf testified that the U.S. public debt will exceed 100% the nation’s GDP in 2021 and reach 190% by 2035 if the current tax and spending policies remain unchanged.
“The budget outlook of the United States is daunting both during the next decade and over the long term,” Elmendorf said during the House Budget Committee hearing.
Under the alternative scenario, Elmendorf cited the continuation of the 2001 Bush tax cuts for the wealthy, the expected curtailed reach of the Alternative Minimum Tax, and anticipated changes to further suppress tax revenues while meeting the growing health care needs of the Baby Boomer generation as the reasons behind the high public debt.
“Implications of this analysis are clear. There is a substantial mismatch between what the government would have to spend to maintain existing programs in their current form and the revenues that taxpayers are accustomed to providing,” said Elmendorf.
House Budget Committee Chairman Paul Ryan (R-WI) ignored the CBO’s analysis on the negative impacts of the 2001 Bush tax cuts and blamed the growing federal deficit solely on government spending. “This report makes clear that exploding government spending – not insufficient revenue – is driving us towards this crisis point,” he said. Ryan criticized the Obama administration for not submitting a “credible” spending plan that excluded tax increases.
Rep. Allyson Schwartz (D-PA), the vice ranking member of the House Budget Committee, said both spending cuts and tax revenue increases are needed to reduce the deficit without jeopardizing the fragile economic recovery. Schwartz said special tax breaks for big oil and gas companies and wealthy Americans are adding $1 trillion to the federal deficit annually.
“Our Republican colleagues refuse to address the need to raise revenue, which is essential to balancing our budget. Just as we cut unnecessary federal spending, we must also cut special tax provisions that add to our deficit,” said Schwartz. “We need sensible, reasonable, strategic solutions to our nation’s budget challenges. It’s clear that the Republican budget takes one-sided approach. We need a balanced approach that meets the commitments of our nation as fiscally responsible and strengthens our economy in the short and long-term.”
According to CBO, lawmakers have three options to prevent the debt from rising to unsustainable levels: Drastic spending cuts, high tax increases, or combination of tax revenue increases and budget cuts. Otherwise, the growing debt would greatly hinder economic growth, shrinking the U.S. GNP by 2% to 6% in 2025 and 7% to 18% in 2035, and would require significant tax increases and/or painful cuts to public services in order to pay the higher interests on the debt.
“The sooner that long-term changes to tax and spending policies are agreed upon and the sooner they’re carried out once the economy recovers, the smaller will be the damage to the economy from growing federal debt,” said Elmendorf.
- WhatTheFolly.com: CBO Director Doug Elmendorf: U.S. debt to reach 85% to 190% of total GDP by 2035
- WhatTheFolly.com: House Budget Committee Chairman Paul Ryan blamed growing deficit on ‘explosive government spending’ not insufficient revenue
- WhatTheFolly.com: Rep. Allyson Schwartz called for balanced approach to reducing the federal budget in response to CBO’s long-term economic outlook
- CSPAN.org: CBO director testifies on long-term budget outlook
- Congressional Budget Office: CBO’s 2011 Long-Term Budget Outlook (PDF)
- Congressional Budget Office: CBO’s 2011 Long-Term Budget Outlook Summary (PDF)
- House Budget Committee: CBO: Debt to overtake entire economy
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