Federal debt will double by the middle of the next decade and reach more than twice the size of the entire U.S. economy by 2037 unless Congress changes course on taxes and spending, the Congressional Budget Office said in its latest analysis Tuesday.
The CBO said it’s the country’s worst fiscal picture since a brief period during World War II, when spending ballooned to fund the military campaign but returned to normal soon after the war ended.
“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 nonpartisan agency’s analysts said in a grim review of the government’s budget challenges.
The CBO said growing debt will be driven chiefly by an aging population that needs higher spending on health care, and by higher interest payments on the debt. Public debt will be equal to 70 percent of gross domestic product at the end of this fiscal year — up from 40 percent at the end of 2008 [-] and will be on its way to more than 200 percent of GDP by 2037.
At that level, fiscal catastrophes are more likely, and the government’s ability to respond becomes far more constrained.
Ironically, the CBO said the deep deficits and debt don’t have to happen. If Congress would step out of the way, major tax increases and deep spending cuts already built into the law would take effect and debt would begin to shrink almost immediately.
However, those tax increases and spending cuts have repeatedly proved to be unpalatable on both sides of the aisle.
Instead, the GOP has fought to permanently extend lower tax rates, and Democrats have defended existing spending programs and proposed some new ones.
That has 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 report produced hand-wringing and finger-pointing on Capitol Hill.
“The president’s policies are not working,” said House Budget Committee Chairman Paul 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 hurdle is the GOP’s demand that spending cuts fuel any debt solution.
The “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.”
At the White House, press secretary Jay Carney said Mr. Obama wants a “balanced way” that raises taxes, while Republican presidential candidate Mitt Romney’s campaign said Mr. Obama’s budget was rejected unanimously by Congress, and said the president hasn’t put forward a plan to reform the entitlement spending that is driving long-term debt.
But some signs of cooperation have poked through in recent weeks.