The US Budget is on an Unsustainable Path

Last week the Congressional Budget Office (CBO) released the Long-Term Budget Outlook. The CBO is a nonpartisan federal agency that provides economic data to Congress. The outlook is very alarming! The conclusion is that under current law, the federal budget is on an unsustainable path. The problem? Federal debt will continue to grow much faster than the economy over the long run.

The chart above illustrates the projected public debt as a percentage of gross domestic product. In the chart you see two projected paths. The path which shows a steep increase in debt is the forecast under current law. The other projection is the forecasted path based on suggested changes to the current law.

At the end of 2008, federal debt held by the public was 41% of GDP. In just two years the CBO is projecting a debt load of 60% of GDP! What’s really disturbing is that CBO is showing a debt expansion from 41% of GDP to more than 180% of GDP in just 25 years. This would be an unprecedented surge in debt that would have a very negative impact on our economy.

Rising health care costs and an aging US population are two reasons cited for increased spending. Add in the government’s major health care programs, Medicare and Medicaid, which are also growing faster than the economy. Don’t forget social security and the projected shortfalls we face with that program in the future. Factor in the current recession and the government’s “stimulus” spending and you’ll see that it’s unlikely our government will be able to correct this problem soon without some serious changes to the current law.

So what does this mean? For one, it means we will almost certainly be facing higher taxes in the future. The fastest way to keep deficits from accumulating debt to levels that would seriously harm our economy is to increase revenues (taxes!) or cut spending sharply.

I am hopeful that our elected leaders will find a solution to this problem (other than higher taxes) and have the courage to take bold action soon! This is a path that we can’t afford to go down. We must see some changes—the right changes—to our current policies and programs to avoid a disaster.

~Adam

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