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CBO Director:
Trillion-Dollar Deficits Risk ‘Fiscal Crisis’ in U.S.
Published January 27, 2011
AP file photo
The top numbers cruncher for Congress warned Thursday that the federal
government increasingly risks sending the country into a “fiscal
crisis,” projecting that unless cuts are made, within a decade the
national debt could reach nearly 100 percent of all annual economic
activity.
That’s like having $50,000 in debt on a $50,000-a-year salary.
Congressional Budget Office Director Douglas Elmendorf, on the heels of
a report pegging the 2011 budget deficit at a record $1.5 trillion,
testified before the Senate Budget Committee on the risks of inaction.
He said cumulative deficits over the next 10 years could run anywhere
from $7 trillion to $12 trillion.
He warned that making budget cuts too deep, too fast could be
“disruptive” to the economic recovery at a fragile time. But he said
Congress will have to start balancing the budget soon if it wants to
head off, or at least minimize, the chance of a national debt-driven
fiscal calamity in the future.
“The longer that you wait to make those policy changes ... the greater
the negative consequences (of the national debt) will be,” he said.
Invoking recent economic crises in countries like Ireland and Greece,
Elmendorf said waiting too long to curb spending and reduce the debt
can have a host of consequences which all add up -- investors get
nervous that the government can’t finance its debt; the government
loses the ability to respond to emergencies while interest rates eat up
more and more of the budget pie; and taxes rise.
As is customary in congressional hearings about the nation’s fiscal
problems, Elmendorf rattled off a string of staggering numbers in his
forecast of future budget shortfalls. He said that if nothing changes
in the law, the federal deficit will add up to $7 trillion over the
next decade, pushing the debt up to 77 percent of GDP. But he suggested
that estimate “understates” the problem, given that lawmakers
frequently extend policies, like tax cuts and higher Medicare payments
to doctors, that would help balance the budget if they were allowed to
expire.
If such short-term policies are extended, Elmendorf said, the deficit
would reach nearly $12 trillion over the decade, pushing the debt to
almost 100 percent of GDP.
The hearing comes after the Congressional Budget Office released a
report that shows the nation’s red ink running even deeper than
previously thought.
“Spending as a share of our national income is at the highest level in
60 years. Revenue as a share of our national income is at its lowest
level in 60 years. No wonder that we are headed for the largest deficit
ever,” said committee chairman Kent Conrad, D-N.D.
The analysis showed the deficit hitting a record $1.5 trillion this
year, charting a rise due in part to a lagging economic recovery
coupled with the recently passed tax cut package.
The study also showed Social Security in a deficit this year. The
entitlement program ran at a deficit in 2010 but had been expected to
run in the black for a few more years before reverting back and
permanently paying out more than it takes in. The latest estimate now
shows Social Security consistently operating at a deficit through about
2037, when its reserves are expected to run out entirely.
President Obama touched on the need for deficit reduction in his State
of the Union speech Tuesday. He called for a five-year freeze on
non-mandatory domestic spending, a proposal he estimated would save
$400 billion over the next decade. He called for action on reforming
entitlements like Medicare, Medicaid and Social Security, without
offering specifics.
But the $400 billion in proposed savings adds up to less than one-third
of this year’s projected deficit, and Republican congressional leaders
roundly called on the administration to do more to address the nation’s
debt and deficit.
At the Budget Committee hearing, there was a bipartisan call for
Congress to develop a spending-cut plan this year.
“We can’t continue to put this off. We need to reach an agreement this
year,” Chairman Kent Conrad, D-N.D., said.
“The time for debate is over, and we must take action,” said Sen. Mike
Crapo, R-Idaho.
Read the story at Fox News
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