US debt is on track to double the size of the entire economy in the next 25 years, the non-partisan Congressional Budget Office reported Tuesday in its grim view of America's fiscal future. The CBO said that under present policy, in which current tax rates are upheld and lawmakers do not curb entitlement, the national debt would soar from 70 percent of GDP as forecast for the end of 2012 to 100 percent of GDP in just over a decade.
"After that, the growing imbalance between revenues and spending, combined with spiralling interest payments, would swiftly push debt to higher and higher levels," the CBO said in its 2012 Long-term Budget Outlook. "Debt as a share of GDP would exceed its historical peak of 109 percent by 2026, and it would approach 200 percent in 2037."
The US economy is facing historic pressure in coming decades due to the aging of the US population: the demands of the large "baby-boom" generation - those born between the end of World War II and the early 1960s - will lead to a significant sustained increase in the share of people receiving benefits such as Social Security and Medicare.
But decisions on taxes and spending will also have huge ramifications on future debt levels, said CBO director Dough Elmendorf, who will testify on Wednesday before Congress on the office's findings.
The report maps out two separate trajectories, including the extended baseline scenario in which federal debt would gradually decline over the next quarter century to 53 percent of GDP, thanks to relatively high revenue levels and low levels of spending on non-health-care programs. "The budget outlook is much bleaker under the alternative fiscal scenario... because revenues would remain at levels similar to those experienced historically, while spending would grow because of aging and rising health care costs," Elmendorf said in the report.
Such an explosive debt trajectory, forecast under current policies, "underscores the need for large and timely policy changes to put the federal government on a sustainable fiscal course," the report said. The latest CBO data is likely to provide fodder for Republican White House hopeful Mitt Romney and congressional Republicans, who say tackling long-term debt is crucial for creating business confidence and hence new jobs.
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