Collaboration in Civic Spheres

Congressional Budget Office: Hey USA, Pick Your Poison

by Matt Rosenberg October 7th, 2013

The charged public debate over yet another U.S. debt ceiling lift is just the tip of the iceberg. Today’s tussles over near-term U.S. borrowing capacity only foreshadow deeper federal fiscal challenges. A recent report from the non-partisan Congressional Budget Office stressed that federal debt has worsened greatly since fiscal year-end 2008, and absent bold intervention will jump dramatically as health care and other entitlements continue to escalate, and new costs grow from U.S. health care exchanges under the Affordable Care Act. “That trajectory for federal debt would ultimately be unsustainable,” CBO says.

The CBO report says, “Federal debt held by the public stood at 39 percent of GDP at the end of 2008, close to its average of the preceding several decades. Since then, large deficits have caused debt held by the public to grow sharply – to a projected 73 percent of GDP by the end of 2013. Debt has exceeded 70 percent of GDP during only one other period in U.S. history: from 1944 through 1950, when it spiked because of a surge in federal spending during World War II….”

CBO, The Long-Term Budget Outlook, September, 2013

An “Unsustainable…Trajectory” For U.S. Debt
The report continues, “CBO projects that, under current law, debt held by the public would rise slightly relative to GDP in 2014 and then, because of smaller deficits, decrease to 68 percent of GDP by 2018. Around 2020, with deficits growing again, debt would begin to rise faster than GDP. By 2038, under the extended baseline, federal debt held by the public would reach 100 percent of GDP….That trajectory for federal debt would ultimately be unsustainable.”

Debt Drivers: Medicare, Medicaid, CHIP, ACA Exchanges
The reasons for the expected rise in deficits and debt, says CBO, are “increasing interest costs and growing spending for Social Security and the government’s major health care programs (Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies to be provided through health insurance exchanges). CBO expects interest rates to rebound in coming years from their current unusually low levels, sharply raising the government’s cost of borrowing. In addition, the pressures of an aging population, rising health care costs, and an expansion of federal subsidies for health insurance would cause spending for some of the largest federal programs to increase relative to GDP.”

Needed: More Taxes, Less Spending, Or Some of Each
CBO estimates that under the “current law” or “extended baseline” scenario, just to stay at the current public debt level of 73 percent of GDP by 2038, the government would starting in 2014 have to either raise federal revenue four-and-a-half-percent, cut non-interest spending by the same percentage, or some equivalent combination of each. To get back down to 2008 levels of federal debt as a mere 39 percent of GDP, the U.S. government would have to raise revenues by 11 percent, cut non-interest spending by 10.5 percent, or achieve some equivalent combination of each, CBO reports.

A Congressional Research Service report shows (Table, p. 17) that at the end of Fiscal Year 2012, the total federal federal debt was 16,066.3 trillion and that 70 percent was held by individual or institutional lenders outside the U.S. government; this is the portion of the debt known as the federal public debt. The remaining balance is held by U.S. government trust funds from which money has been transferred to other government coffers. The CRS report also shows federal public debt as a percentage of GDP rising sharply since fiscal year-end 2008, when it was just 40.2 percent, steadily to 71.3 percent by fiscal year-end 2012.

CRS, The Debt Limit, History And Recent Increases, September, 2013

In another report, issued September 25, CBO projects that absent some solution to the current political deadlock on raising the U.S. debt ceiling once more, from the current $16.699 trillion, the U.S. Treasury will likely exhaust its current borrowing powers and cash balance somewhere between October 22 and October 31, although it could buy a bit more time – and borrowing capacity – by suspending some current debt-accruing investments of less than $100 million.

Public Data Ferret’s U.S. Government+Finance/Budget archive

But required federal cash outflows are substantial, the office notes. Each month, Medicare Advantage and Part D require $17 billion in U.S. government payments; social security benefits paid are $61 billion; military pay and benefits, $25 billion. There are also interest payments pending on the federal debt including one due November 15 of $30 billion on U.S. Treasury bonds, which are purchased by investors – often foreign – to finance our continuing deficit budgets, and the federal debt. All these expenses aside, additional government spending obligations will run at the clip of about $10 billion per day into October, says CBO.

Overall, interest-only payments on the U.S. federal debt in fiscal year 2013 – ending September 30, 2013 – will have totaled almost $416.7 billion, according to the U.S. Treasury.


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