With all eyes on the recall election in Wisconsin there hasn’t been much coverage of a report released by the Congressional Budget Office yesterday. I’m sure the political class, especially President Obama and the rest of the Democrats, is hoping nobody will pay it any attention. The Wall Street Journal reported that the prediction is that the national debt will rise to 70% of GDP by the end of this year, and a whopping 200% of GDP in 25 years.
“The explosive path of federal debt…underscores the need for large and timely policy changes to put the federal government on a sustainable fiscal course,” CBO director Doug Elmendorf wrote on his blog on Tuesday.
Budget watchdogs have long warned the U.S. was on an untenable fiscal path, due largely to the projected growth in spending on Medicare and other entitlement benefits as baby boomers age. Tax cuts enacted under former President George W. Bush also have contributed to the current fiscal plight.
Without changes in benefits or higher taxes—or both—the federal debt held by the public could reach 199% of GDP in 25 years, the CBO said, up from 187% in last year’s projection. (Read More)
The Journal’s editorial explains what was left out of the CBO report.
The biggest weakness in CBO’s analysis is its pessimistic estimate of economic growth. The budget gnomes assume an annual growth rate of 2.2%, which may be the Obama era’s new normal but is far below what is possible with the right policies. Even an average growth rate of 3.2% a year, which is close to the rate of the 1980s and 1990s, would reduce deficits and the debt burden substantially.
This is where the tax burden comes in, and on that score CBO admits that “to the extent that additional tax revenues were generated by boosting marginal tax rates, those higher rates would discourage people from working and saving, further reducing output and income.” So even the Keynesians who dominate CBO admit that there are costs in lower growth to the higher tax rates that Mr. Obama wants to foist on the country next year.
Read the whole thing. This is fiscal child abuse, and it’s not going to get better as long as President Obama is in office. At least with Romney there’s a chance something will be done to turn it around.