For much of this year, the left has contended that America no longer has a spending problem, citing a shrinking deficit for 2013.
However, in the latest Congressional Budget Office (CBO) report released last week, CBO Director Doug Elmendorf blew that theory out of the water:
The federal budget deficit has fallen faster than we expected a few years ago, and projected deficits have been reduced relative to what we expected would occur if the policies in place at that time were continued. However, relative to the size of the economy, debt remains historically high and is on an upward trajectory in the second half of the coming decade.
The fundamental federal budgetary challenge has hardly been addressed: The largest federal programs are becoming much more expensive because of the retirement of the baby boomers and the rising costs of health care, so we need to cut back on those programs, increase tax revenue to pay for them, or take some combination of those actions. Those choices are difficult, and the decision as to when we should implement such changes is complicated by the negative effects they could have on the economy if they took effect while it is still fairly weak.
Moreover, the CBO released its newest long-term debt projections for the federal government’s publicly held debt yesterday morning—and the picture is as bad as Elmendorf claimed. Four numbers in particular stand out:
- Under budget assumptions that are relatively optimistic, CBO expects publicly held debt to reach 108% of GDP in 2038.
- If deficits go up by $2 trillion dollars more than the first set of budget assumptions by 2023, publicly held debt in 2038 will be 190% of GDP in 2038.
- If $2 trillion is cut compared to the first assumption by 2023, the debt level would be slightly smaller than it was in 2012, at 67% of GDP.
- And if Congress acts to cut $4 trillion compared to the first budget assumption by 2023, the publicly held debt would be lower than the level in 2007, at 31%.
In other words, unless Congress acts decisively to curb spending, America will incur unprecedented levels of debt.
It’s long past time to make real cuts to the federal budget, including to the entitlement programs the American people value the most. If we do not, it is possible that the United States will face an existential debt crisis that will make the financial collapse of Greece appear tame.