The Congressional Budget Office issued its 10-year budget outlook this morning and the news is good.
The CBO cut its projected federal deficit for 2014 by $46 billion dollars, to $514 billion, or about three percent of the U.S. gross domestic product and said that it expected the deficit to fall to $478 billion, or 2.6 percent of GDP, in 2015. In fact, deficits are expected to stay below the 40-year average for the next three years.
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The problem is that over the longer term, they start growing again, and CBO now believes that growth will be faster than previously anticipated. The agency said that the cumulative deficit over the 10 years between 2014 and 2023 will be a full $1 trillion higher than expected, largely due to reduced government revenue as a result of changes in the CBO’s economic forecast.
According to CBO’s analysts, the implications of rising debt are at once varied and uniformly bad.
“Over the next decade, debt held by the public will be significantly greater relative to GDP than at any time since just after World War II,” the report found. “With debt so large, federal spending on interest payments will increase substantially as interest rates rise to more typical levels. Moreover, because federal borrowing generally reduces national saving, the capital stock and wages will be smaller than if debt was lower.
“In addition, lawmakers would have less flexibility than they otherwise would to use tax and spending policies to respond to unanticipated challenges. Finally, such a large debt poses a greater risk of precipitating a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.”
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In Washington, Republicans and Democrats alike noted the danger of allowing the national debt to keep increasing, but offered markedly different policy prescriptions for addressing the problem.
Rep. Paul Ryan, the Wisconsin Republican who chairs the House Budget Committee, said in a statement that the CBO numbers show the need for more spending cuts.
“Last year, I was pleased to work across the aisle to get a modest down payment on the debt. But today’s CBO report makes it clear that we still have a lot of work to do,” Ryan said. “CBO says autopilot spending and interest payments are the main drivers of our debt. In other words, we still have a spending problem. It’s squeezing key priorities in our budget, and it’s restricting opportunity for families in need.”
Ryan continued, “Today’s report is an important reminder that the debt won’t take care of itself—we must take action.”
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Maryland Democrat Chris Van Hollen, the senior Democrat on the House Budget Committee, said the CBO report highlights the need for more jobs.
“Today’s report underscores why President Obama and Democrats in Congress are so committed to boosting job growth,” Van Hollen said in a statement. “While we’ve made important progress, this report finds we are doing a better job generating economic growth than jobs.”
Van Hollen added, “Putting Americans back to work will help millions of families and help our economy overall – it’s also the fastest and most effective way to reduce our deficit, which this report confirms we must still address over the long term.”
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