The Debt Tsunami

June 28, 2009 Washington Post

THE CONGRESSIONAL Budget Office has a tough job: to provide America’s lawmakers with a reality check on their tax and spending plans. Not surprisingly, the CBO’s projections are not always received cheerfully. Both President Obama and leading congressional Democrats were less than thrilled when the CBO estimated that the costs of universal health coverage would be much higher than advertised. To be sure, projecting the cost of legislation involves making assumptions and constructing models that may or may not prove accurate 10 years down the road. Nonetheless, the CBO, with its tradition of scholarly independence, is the best available arbiter, and Congress must heed its numbers—like them or not.

Now comes the CBO with yet more news of the sort that neither Capitol Hill nor the White House is likely to welcome: its freshly released report on the federal government’s long-term financial situation. To put it bluntly, the fiscal policy of the United States is unsustainable. Debt is growing faster than gross domestic product. Under the CBO’s most realistic scenario, the publicly held debt of the U.S. government will reach 82 percent of GDP by 2019 — roughly double what it was in 2008. By 2026, spiraling interest payments would push the debt above its all-time peak (set just after World War II) of 113 percent of GDP. It would reach 200 percent of GDP in 2038.
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This huge mass of debt, which would stifle economic growth and reduce the American standard of living, can be avoided only through spending cuts, tax increases or some combination of the two. And the longer government waits to get its financial house in order, the more it will cost to do so, the CBO says.

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