In February 2009, a month after President Obama took office, he released his first budget, titled “A New Era of Responsibility” that projected a federal deficit of $533 billion in 2013. Today, the Congressional Budget Office estimated this year’s deficit would be $845 billion. Yet this is being treated as good news, because it’s the first time since 2008 that the annual deficit is lower than $1 trillion.
But a broader look at the CBO’s report shows that even though this year’s tax increases and negotiated spending cuts are expected to keep the deficit below $1 trillion, it still remains historically high, and the nation’s mounting debt is still unsustainable. As a percentage of the economy, this year’s deficit will be 5.3 percent, which the CBO informs us is “larger than in all but one year between 1947 and 2008.”
The CBO writes:
Under current law, the aging of the population, the rising costs of health care, and the scheduled expansion in federal subsidies for health insurance will substantially boost federal spending on Social Security and the government’s major health care programs, relative to GDP, for the next 10 years and for decades thereafter. Unless the laws governing those pro- grams are changed—or the increased spending is accompanied by corresponding reductions in other spending, sufficiently higher tax revenues, or a combination of the two—debt will rise sharply relative to GDP after 2023.
There are two basic ways to measure the nation’s debt, but by any measure, it’s exploding. Public debt (U.S. debt held by investors), is projected to rise from $12.2 trillion in 2013 to $19.9 trillion by 2023. Gross debt (which includes money the federal government owes other government funds, such the Social Security system) is projected to grow from $17 trillion in 2013 to $26 trillion by 2023.
These projections assume that automatic spending cuts go into effect as scheduled next month and that physician payments in the Medicare program get slashed.
The CBO writes that, “Debt that is high by historical standards and heading higher will have significant consequences for the budget and the economy.” Specifically, the report warns of rising interest rates, lower saving levels and fewer options for federal policy makers in an emergency. “The likelihood of a fiscal crisis will be higher,” the CBO also warns. “During such a crisis, investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow funds at affordable interest rates.”
A lot of people remain unconvinced that the nation’s growing debt is actually a problem, or at the very least, an issue that needs to be dealt with imminently. It’s true that in the short-term, a country can run up huge deficits. But the problem with delaying a solution to the debt crisis brought on by programs such as Social Security, Medicare and Medicaid, is that it makes the options much more difficult. “Deciding now what policy changes to make to resolve that long-term imbalance would allow for gradual implementation, which would give households, businesses, and state and local governments time to plan and adjust their behavior,” according to the CBO.