Washington has taken an indefinite break from the budget debate. No one’s expecting a grand bargain any time soon. Nor a small bargain — nor even serious incremental reform. Deficits have come down from their historic highs during the Great Recession and its aftermath. Health care costs have not risen as quickly in the last few years, making the long-term budget outlook a bit more manageable.
But the Congressional Budget Office (CBO) on Tuesday rained on this bipartisan parade. In its latest long-term budget projection, the country’s arbiter of all things fiscal warned that federal spending remains dangerously unsustainable in the long term.
Some may take solace in the finding that debt relative to GDP has stabilized and will hover around the current 74 percent through 2020. But CBO concluded that “federal debt held by the public is projected to grow faster than the economy starting a few years from now, and because debt is already unusually high relative to GDP, further increases could be especially harmful.” If that process of debt accumulation proceeds, the CBO reckons, debt as a percentage of GDP would rise to 106 percent 25 years from now. That level of indebtedness would have a variety of negative economic effects. Among them: The country might well be incapable of taking strong action to support the economy during the next crisis. We should also note that the CBO projects a much larger debt problem if Congress decides to renew a variety of expensive policies — a realistic bet.
Those who argue against addressing the long-term budget imbalance may point out that the CBO’s estimates are uncertain. But there is a downside to uncertainty, too: Things could turn out much worse than expected.