CBO Sounds a Warning of American Fiscal Ruin
S E E D E D C O N T E N T
A recent report from Washington could signal convulsive changes in policy—and it has nothing to do with abortion. The Congressional Budget Office's latest analysis of what's needed to put America's fiscal house in order makes a compelling case for a return to fiscal sanity sooner rather than later.
CBO examined two scenarios for stabilizing federal debt (relative to gross domestic product) over 10 years. The first would gradually raise personal income-tax rates in equal proportion across the income spectrum. The second would gradually reduce benefit payments for Social Security, Medicare, Medicaid, and ObamaCare. The budget gnomes analyzed each scenario with three different starting dates, with fiscal tightening beginning in 2026, 2031 or 2036.
Unsurprisingly, delaying the start of fiscal responsibility necessitates larger tax increases or benefit reductions. Postponing action until 2036 means debt wouldn’t stabilize as a percentage of the economy until the 2040s—and it would stabilize at levels 30 to 40 percentage points higher than current debt-to-GDP ratios. Delay poses another obstacle for stabilizing debt with tax increases rather than benefit reductions. Waiting until 2036 to impose a tax-increase regime would see debt balloon to 140% of GDP.
The CBO believes that stabilizing debt through tax increases would permanently shrink the economy by discouraging work and crowding out private investments that would improve productivity. Stabilizing debt through lower entitlement spending, by contrast, might lead people to work longer and would increase private saving, both of which would increase economic growth.
The CBO report demonstrates why Washington needs to rediscover its fiscal discipline. The dishonesty of ObamaCare, which used Medicare payment reductions both to fund new entitlements and improve Medicare’s fiscal position, helped create the current crisis. By extending Medicare’s solvency on paper, the law’s accounting gimmickry allowed lawmakers in both parties to avoid any substantive discussion of reform for a dozen years.
Those days of blissful fiscal ignorance will soon end. By the next presidential inauguration, in January 2025, Congress will face a toxic brew of long-delayed budgetary decisions. The Medicare trust fund will face imminent insolvency, running ever-increasing losses projected at nearly $100 billion annually by the end of the decade. Many provisions of the 2017 tax reform will expire at the end of 2025. The military will need additional resources to respond to a more dangerous global environment. To top it off, the economy could face a recession, as the Federal Reserve’s failure to get on top of rising inflation could lead to an overcorrection in the years to come.
The American people know little about the magnitude of this impending crisis, in large part because a generation of politicians have proved singularly uninterested in educating the public about these inconvenient truths. The CBO report illustrates how a continued failure by our elected leaders to lead a movement for fiscal responsibility will cause the American people to pay the price for generations to come.
Mr. Jacobs is founder and CEO of Juniper Research Group, and author of “The Case Against Single Payer.”
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Does anyone think that our elected officials care?
Neither of these holds the federal government responsible and puts the burden on the taxpayers. It's their unchecked borrowing and spending that is causing much of the problems. Sending aid all over the place and the un-funded stimulus bills are killing us.
From George W to now, we never paid off the bills. We went from one crisis to another without paying the bill.
Even after WWII we took on the hard task cleaning up the debt.
And that's the problem. They have gotten used to not being held accountable that it's become second nature.
I'd love to see a scenario play out where for every percentage the debt / deficit increases, so does the deduction to their salaries with a threshold of say 5%. Anything over 5% they don't get paid and all their assets frozen and used as payment until it's paid down.
I looked for an explanation about the US debt, and I think this site was quite educational and well presented (LINK) ->
Meanwhile back here in reality only Democratic Presidents have reduced our budget deficit. Reagan, Bush and Trump blew it up. Only Clinton, Obama and Biden have reduced deficit spending.
Obama & Biden hold the records.
I read the Politifact article, it never once mentioned who was in control of the congressional purse strings which is where the deficit spending begins, the president can only sign what is placed in front of him.
Another Dem President or two and we will be debt free.
Politifact is as usual, all politics and no facts.
Exactly, Biden's deficit last year was only $2.8T.
Well, gee, with that great Biden economy you used to brag about, why would Biden have any deficits at all?
We are only $665B in the hole so far this year.