The nation is on a course to a "sudden fiscal crisis" — with debt to nearly double GDP in 25 years — if policymakers fail to take measured steps to halt the growing debt burden, the Congressional Budget Office said Wednesday.
In its annual long-term budget outlook, the CBO on Wednesday said lawmakers would "need to let revenues increase substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches" if the nation is to return to what it called a "sustainable budgetary path."
The CBO report cautioned that immediate tax hikes or budget cuts could have the unwanted effect of slowing down the economic recovery. But, it added, "the sooner that medium- and long-term changes to spending and revenues are agreed on — and the sooner they are implemented after the period of economic weakness — the smaller will be the damage to the economy from rising federal debt."
Republicans and Democrats reacted differently to the report. Rep. Paul Ryan, D-Wis. (left), chairman of the House Budget Committee, said the coming crisis was predictable. Ryan's Democratic counterpart on the Budget Committee, Chris Van Hollen D-Md., said the parties must work together using President Barack Obama's vision as a guide.
Writing in his blog on Wednesday, CBO Director Douglas Elmendorf contrasted the cost of entitlements — Medicare, Medicaid, the Children's Health Insurance and insurance exchange subsidies mandated under the administration's new health care program — with the historical average for all programs. Today's entitlement programs are projected to rise 50% — from 10% of GDP today to 15% 25 years from now. In contrast, "spending on all of the federal government's programs and activities, excluding interest payments on debt, has averaged about 18.5 percent of GDP over the past 40 years."
