Wednesday brought the latest forecast from the Congressional Budget Office of where the federal debt is headed.
Saying the nation is headed over the fiscal cliff about sums it up. It's a very ugly picture sure to focus the minds of the lawmakers negotiating with Vice President Biden on raising the debt ceiling. It's also a general warning to policymakers as they tussle over how to address the nation's fiscal crisis.
The analysts used two scenarios. The scariest one happens to be the one the CBO says "many budget analysts believe presents a more more realistic picture of the nation's underlying fiscal policies."
It envisions lawmakers extending the Bush-era tax cuts as entitlement spending continues to rise because of an aging U.S. population.
Under that scenario, the nation's publicly held debt would exceed the entire output of the economy in ten years. But it gets worse, much worse.
Right now the debt held by the public represents about 69 percent of the nation's entire economic output, its gross domestic product. If the Bush tax cuts are extended, the analysts at the nonpartisan CBO say:
Under those policies, federal debt would grow much more rapidly than under the extended-baseline scenario. With significantly lower revenues and higher outlays, debt held by the public would exceed 100 percent of
GDP by 2021.
After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2023 and would approach 190 percent in 2035.
The less likely scenario is that lawmakers will allow the Bush-era tax cuts to expire. In that circumstance, the debt would rise to 84 percent of GDP by 2035.
The CBO's job isn't to recommend policy. But the CBO can't help but state the obvious; Republicans and Democrats are going to have to do some things neither side wants to.
To keep deficits and debt from climbing to unsustainable levels, policymakers will need to increase revenues substantially as a percentage of GDP, decrease spendingsignificantly from projected levels, or adopt some combination of those two approaches. Making such changes while economic activity and employment remain well below their potential levels would probably slow the economic recovery. However, the sooner that medium- and long-term changes to tax and spending policies are agreed on, and the sooner they are carried out once the economy recovers, the smaller will be the damage to the economy from growing federal debt...
In other words, Republicans are going to have to agree to tax increases of some sort while Democrats will need to accept new constraints on entitlement spending. And the sooner, the better, warns the CBO.