Decoding the CBO’s Latest Report

Decoding the CBO’s Latest Report

While the media swirls around Sen. Bernie Sanders and Sec. Hillary Clinton’s debate disagreements and Trump’s latest crazy utterances, the press missed perhaps the biggest news of the week – a story that will likely impact the next generation more than the price of a Clinton speech or another Trump harrumph.

The nonpartisan Congressional Budget Office (CBO) released a new report projecting that our nation’s future deficits and debt are spinning out of control.

In response, The Campaign to Fix the Debt, a nonpartisan movement dedicated to addressing our country’s economic and fiscal problems, made three points worth sharing in an edited form:

  1. The Era of Declining Deficits is Over
  • This year’s budget deficit is forecast to be $544 billion, $105 billion higher than last year. And deficits are projected to trend upwards.
  • Trillion-dollar deficits will return by 2022, and the deficit will reach $1.37 trillion by 2026.
  • Deficits will nearly double in the next decade from 2.5 percent of the economy in 2015 to 4.9 percent by 2026.

(Source: The Campaign to Fix the Debt)

  1. Already Unsustainable Debt Path Is Now Much Worse
  • Debt held by the public will grow by more than $10 trillion over the next decade, from $13.1 trillion last year to $23.8 trillion in 2026.
  • As a share of the economy, debt will grow from 74 percent today to 86 percent in 2026. That is more than twice the 50-year debt average of 39 percent.
  • Nearly half of the projected $2.5 trillion increase in total spending from 2016 to 2026 is for Social Security and Medicare. Interest on the debt, the fastest growing part of the budget, will more than double over the decade, growing from 1.3 percent of the economy in 2015 to 3 percent in 2026.
  1. Irresponsibility in Washington Is a Chief Culprit in the Worsened Outlook
  • Last year, Congress added over $1 trillion to the projected debt in 2026 by passing unpaid-for tax breaks and Medicare spending increases.
  • Failure to follow the “pay-as-you-go” law that requires paying for new policies is responsible for roughly half of the deterioration of the country’s fiscal outlook from last year.
  • If policymakers continue to act irresponsibly…the debt projections will be much worse. This could add an additional $1.4 trillion to the debt, making it reach 91 percent of the economy by 2026.

What changed the CBO’s assumptions? In part, Congress pass unfunded benefits and tax decreases. And the CBO was more pessimistic on the economy. They now assume a 4 percent nominal growth rate split equally between a 2 percent growth rate and a 2 percent inflation rate. The good news is that they also assume low interest rates of 4.1 percent. If they are wrong and interest rates rise, the annual deficits will become higher, since interest on the debt is the one part of the federal budget which cannot be cut by Congress.

Ironically, the Democratic candidates for president as well as Donald Trump refuse to even discuss cutting entitlements, which are the largest source of the growing debt. Sadly, my generation has promised ourselves incredible benefits and we will pay for them by borrowing from our children.

While history will note my generation’s breakthroughs in medicine and communications thanks to the evolution of wireless communications and the Internet, they will also brand us as the selfish ones who bankrupted a country and a generation.

Before we can deal with issues of equality, global warming and defeating ISIS with the support of a strong military, we must figure out how to save our children’s economic future.

We need to see some truly rational politicians emerge. The number one political priority is to be elected. Number 2 is to be reelected. Not great odds for good governance.

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Gary Jenkins

Well Control Specialist at Halliburton - Boots&Coots

9 年

Seems apparent that candidates from both major parties are learning that to be elected, one now has to promise the voters more 'free stuff', or at least not talk about what might have to be taken away, otherwise they have a greatly reduced chance of being elected! Dems are even now offering Free College, free health care, free phones, etc, etc. So is the USA now turning from apathy to dependence? Hasn't the welfare/medicare roles greatly expanded under Obama? Hasn't the national debt effectively doubled under Obama? Isn't Obama wanting/releasing thousands from prisons and working to restore their voting rights in time for the next election? Aren't some people saying one does NOT need a photo ID to vote in National election, but you do to cash a check or board a plane? Humm... USA gained it's independence in 1776, its been 240 years, so will the USA goes back into bondage or dictatorship before we celebrate 300 years as a democratic nation? Seems the Rule of Law is getting weaker all the time, or at least the Federal enforcement is now, uh, selective enforcement? https://en.wikipedia.org/wiki/Alexander_Fraser_Tytler The following quotation has been attributed to Tytler, although it has also been occasionally attributed to Alexis de Tocqueville:[citation needed] A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. The average age of the world's greatest civilisations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to complacency; From complacency to apathy; From apathy to dependence; From dependence back into bondage.

Mark W. Scott, MBA

Retired Verizon Treasury & Financial Management Professional

9 年

There is no question that the debt, trade and currency will be some of the most challenging and critical issues in the foreseeable future. The numbers being what they are, I have little doubt that will need to be some manner of new Bretton Woods Agreement.

amnh ali

Apparel & Fashion Professional

9 年

Good morning

Paul Toulouse

Supervisor at Pipe supports

9 年

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