–Congressional Budget Office Releases Grim Long-Term Budget Outlook
–Deficits Over Next Few Years Will Fall ‘Markedly’
–But Then Deficits, Debt Set To Grow Steadily
–Senate Budget Chief: CBO Report Shows “Urgency” Of Deficit Accord

By John Shaw

WASHINGTON (MNI) – The Congressional Budget Office Wednesday
released its annual long-term budget outlook and the report says that
rapidly growing debt levels, unless contained, could inflict serious
damage to the American economy.

The CBO said budget deficits over the next several years will
probably decline “markedly” as the recovery takes hold.

“But the budget outlook, for both the coming decade and beyond, is
daunting,” it said, adding that the coming retirement of the Baby Boom
generation “portends a significant and sustained increase in the share
of the population receiving benefits from Social Security, Medicare and
Medicaid.”

The CBO said that if current laws remain, federal spending on major
mandatory health programs would grow from less than 6% of GDP in 2011 to
about 9% in 2035 — and would continue to rise thereafter.

“Altogether, the aging of the population and the rising cost of
health care would cause spending on the major mandatory health care
programs and Social Security to grow from roughly 10% of GDP today to
about 15% of GDP 25 years from now,” it says.

The CBO report outlines two possible fiscal scenarios over the next
25 years and both show a sharp increase in debt levels from the roughly
70% of GDP the U.S. will reach this year.

The CBO said large budget deficits and growing debt would reduce
national savings, cause higher interest rates, require more borrowing
from abroad and dampen domestic investment. All of this would lower
income growth in the U.S., the CBO said.

The budget office said that to control deficits and debt American
policymakers must “increase revenues substantially as a percentage of
GDP, decrease spending from projected levels or adopt some combination
of those two approaches.”

It said large scale fiscal consolidation while the economy remains
weak would “probably slow the economic recovery.” But it said that
developing a deficit cutting plan now and implementing it gradually
would minimize the inevitable damage to the economy from growing federal
debt.

In a statement, Senate Budget Committee Chairman Kent Conrad said
the CBO report underscores the “urgency” of securing a deficit cutting
agreement this summer.

Doug Elmendorf, the director of the CBO, will testify Thursday at
10 a.m. before the House Budget Committee on the new report.

** Market News International Washington Bureau: (202) 371-2121 **

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