–Congressional Budget Office Says ‘Large And Timely’ Changes Needed
–Federal Debt To Reach 70% of GDP This Year
–Fiscal Trends Will Worsen Unless Spending Cuts, Revenue Hikes
–CBO Chief Elmendorf To Testify Wed. On Report to House Budget Panel

By John Shaw

WASHINGTON (MNI) – In its annual report on the U.S.’s long-term
fiscal outlook, the Congressional Budget Office said Tuesday the
combination of an aging American population and rising health care costs
will put the nation on a ruinous fiscal path unless fiscal reforms are
implemented.

The CBO report repeats themes that it has articulated for years,
but there are hints of urgency that have not been as evident in earlier
CBO reports.

The CBO notes that the U.S.’s public debt has jumped from 40% of
GDP in 2008 to more than 70% of GDP by the end of this year.

“The sharp rise in debt stems partly from lower tax revenues and
higher federal spending caused by the severe economic downturn and from
policies enacted during the past few years,” the CBO says.

“However, the growing debt also reflects an imbalance between
spending and revenues that predated the recession,” it adds.

The CBO report says that if current policies are maintained,
spending on major federal health care programs alone would grow from
more than 5% of GDP today to almost 10% in 2037 and then continue to
jump.

The CBO outlines two future fiscal scenarios: one which assumes
that current laws remain intact such as the expiration of the Bush era
tax cuts and across-the board-spending cuts; and a second that assumes
that some adjustments are made that more closely reflect the fiscal
policy that has been approved in recent years.

In the first scenario, which would lead to sharply higher revenues
and lower spending than the historic norm, public debt would fall to
about 53% of GDP by 2037.

In the second scenario, which would result in much lower revenues
and higher spending than the first scenario, public debt would approach
200% of GDP by 2037.

“The explosive path of federal debt under the alternative scenario
underscores the need for large and timely policy changes to put the
federal government on a sustainable fiscal course,” the CBO says.

The CBO report says clearly that U.S. fiscal policy must change.

“The aging of the U.S. population and the rising costs for health
care mean that the combination of budget policies that worked in the
past cannot be maintained in the future,” CBO says.

“To keep deficits and debt from climbing to unsustainable levels,
as they will if the current set of policies is continued, policymakers
will need to increase revenues substantially above historical levels as
a percentage of GDP, decrease spending significantly from projected
levels, or adopt some combination of those two approaches,” it adds.

Doug Elmendorf, the director of the CBO, will testify on the report
Wednesday before the House Budget Committee.

** MNI Washington Bureau: (202) 371-2121 **

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