The Congressional Budget Office (CBO) issued a majorly pessimistic revision to its long-term Federal budget outlook Wednesday, predicting that publicly-held Federal debt will rise to 100 percent of the National GDP within the next 30 years – instead of the already-alarming 73 percent of GDP it accounts for now.
Describing Congress’ annual capitulation to pressure to raise the Federal debt ceiling an “unsustainable” fiscal scheme, CBO director Douglas Elmendorf hinted that disaster lies ahead if the best that government can do is continue its tax-and-spend policy over the long term.
“The federal budget is on a course that cannot be sustained indefinitely,” Elmendorf said. “Because federal debt is already unusually high relative to GDP, further increases in debt could be especially harmful.”
The increasing ratio of debt service (that’s loan repayment for public debt) to GDP is on track to jump from 2 percent of GDP to 5 percent, meaning that the government will be spending more of tomorrow’s dollars to pay for tax-and-spend debt it’s incurring now. That, coupled with an enormous jump in Federal entitlement spending (an even 200 percent by 2038), threatens to commit the lion’s share of tomorrow’s economy to the economic equivalent of treading water.
The upshot is that the Federal debt is on track to reach – literally – 100 percent of GDP within the next 25 years.
“The policy responses to mitigate rising debt levels are all politically difficult,” writes Reason’s Peter Suderman. “Federal policymakers will have to cut spending, increase revenues, or some mix of the two. But it will be especially hard to raise revenues since they’re already on track to be higher as a percentage of GDP than is typical. Rapid changes might negatively shock the system. But letting debt continue to rise is dangerous too: ‘because federal debt is already unusually high relative to GDP,’ the report says, ‘further increases in debt could be especially harmful.’”
Congress is set to fight over another hike in the Federal debt ceiling next month, though an increase is all but inevitable if the government is to avoid defaulting, given its present rate of spending.