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CBO: Budget deficits likely to mount

Federal bailout on Wall Street deepens debt in the trillions

By David M. Dickson (Contact) | Monday, September 22, 2008

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As the U.S. government embarks on a financial-rescue mission - whose cost is impossible to predict - the nation is already headed for a sustained period of budget deficits on a scale never seen before, said Peter R. Orszag, director of the Congressional Budget Office.

Mr. Orszag recently outlined a scenario in which $7 trillion in cumulative deficits could be piled up over the next 10 years.

The so-called "on-budget deficits," which exclude Social Security surpluses, would exceed $9 trillion over the next 10 years, CBO data reveal.

Under the plausible fiscal-policy scenarios detailed in CBO's latest "Budget and Economic Outlook," which was released earlier this month, the budget deficits for 2017 and 2018 could exceed $1 trillion each year.

Trillion-dollar deficits would be arriving just as the cash-flow surpluses from Social Security turn into cash-flow deficits, a development that would require the federal government to use general revenues to meet Social Security benefit payments.

If the projections hold true, these deficits would become the primary force that would add $10 trillion to the national debt, more than doubling it by 2018.

"Unfortunately, that's the good news," Mr. Orszag said, "because thereafter we start to experience the longer-term budget pressures that are at the heart of the long-term fiscal problems the nation faces."

David M. Walker, the former comptroller general of the United States, said, "It is very possible that the numbers could be worse" than the 10-year, $7 trillion deficit projected by the CBO director. Mr. Walker, who, as head of the Government Accountability Office, conducted a nationwide Fiscal Wake-Up Tour chronicled in the documentary "I.O.U.S.A," recently became president and CEO of the Peter G. Peterson Foundation, which was established to alert Americans about the forthcoming fiscal crisis.

The impact of $700 billion deficits

If the deficits unfold as Mr. Orszag projects, "it would clearly have an adverse long-term effect on our economic position, but the scarier thing is that it is just the beginning. Baby boomers don't begin retiring in big numbers until after 2018, when a fiscal tsunami could swamp our country," Mr. Walker said.