Significant risks to the economy from rising debt – Taylor Millard

According to the nonpartisan Congressional Budget Office, the U.S. economy faces „significant risks” from rising federal debt.

Its new economic projections warn that US debt, at $34.4 trillion, will reach 107% of the nation's GDP within five years. This is the highest since World War II, when America's debt was more than 112% of GDP.

The CBO warned that the debt-to-GDP ratio could fall by 166% by 2054, slowing economic growth and increasing interest payments to creditors.

„This is another reminder that politicians are putting political priorities ahead of the long-term health of the country,” said Maya Makinias, chairwoman of the Committee for a Responsible Federal Budget. „There's no way to look at these eye-popping numbers without realizing that we need to change. And yet we have lawmakers promising what they won't do: 'I won't raise taxes, I won't fix Social Security, I won't pay for all the things I want to do.' So, we continue down this dangerous path.

Federal spending spiked during the financial crisis of 2007 to 2009, but rose even more in 2020 when the coronavirus pandemic hit.

According to the CBO, health care is the main cause of rising costs due to America's aging population. Its projections say those programs, including Social Security, Medicare and Medicaid, will reach 8.3% of GDP by 2054. It accounts for more than 50% of all non-interest expenditure in the central budget.

Despite the gloomy projections, fiscal hawks fear federal politicians have no stomach for change.

„It's very clear that trust fund programs and net interest are driving budget deficits and debt,” said Jason Bye, a senior policy adviser at FreedomWorks. „There's not a lot of political will to address these issues.”

„Expenditure-based deficit reduction, particularly targeted at social and entitlement programs, can be very effective in reducing deficits and the growth of debt as a percentage of GDP,” said Romina Bocia from the Cato Institute. „While revenues may be part of a politically realistic deficit-reduction proposal, legislators should focus on closing special interest loopholes that distort markets by subsidizing certain spending and investments for reasons of political expediency.”

The House Republican Study Group's recently released budget proposal included some changes to the Social Security formula. Among the adjustments are „modest changes in the retirement age for future retirees” related to life expectancy. High earners will have fringe benefits limited or phased out. The plan rejected the idea of ​​any tax hike because it would „punish (people) more and burden the broader economy.”

The proposals were slammed by the Biden administration as „radical.”

„This radical budget will cut Medicare, Social Security and the Affordable Care Act,” President Biden said. „It will reward rich and big corporations. Let me be clear: I will stop them.

Republican presidential candidate Donald Trump wants to leave Social Security alone.

Meanwhile, Biden's budget increases spending to $7.3 trillion, nearly double President Barack Obama's last budget ($3.5 trillion). Biden's budget contains no entitlement reforms and would add $1.8 trillion to the debt in fiscal year 2025.

Pai, with FreedomWorks, expressed regret.

„This should be a fixable problem, but the majority of members of Congress are interested in providing entertainment to the base of whatever party they belong to,” he said. “The Congress elite has already paralyzed the Congress. I don't think they will be satisfied until they financially cripple the nation.

Mercatus Center economist Jeremy Horpedahl doesn't think the government will listen to CBO's projections because it doesn't want to do Congress's job.

„The sooner Congress fixes the deficit problem, the easier it will be to do that, but their political impulses are to extend it,” he said. „Both Congress and the president have shown us time and time again that they don't want to act on budget issues until the last minute, which only makes the problem worse.”

Taylor Millard writes about politics and public policy for InsideSources.com.