Over the long term, the CBO said, a projected explosion in government spending outside interest on the debt is “attributable entirely” to the ballooning cost of “Social Security, Medicare, Medicaid, and (to a lesser extent) insurance subsidies” intended to help finance coverage for the uninsured under President Obama’s new health-care law.
“The health care programs are the main drivers of that growth,” the CBO said, responsible for 80 percent of the projected rise in spending on those programs over the next 25 years.
Tax collections could keep pace with those costs if Congress permitted the George W. Bush tax cuts to expire on schedule in 2012 and allowed the alternative minimum tax to hit millions of additional households, the CBO said. But under current tax policies, the CBO said, tax collections would barely cover the cost of the health and retirement programs alone by 2035.
“If policymakers are to put the nation on a sustainable budgetary path, they will need to let revenues increase substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches,” the CBO report said.
The report cautions that taking either action now “would probably slow the economic expansion. However, the sooner that medium— and longterm changes to spending and revenues are agreed on— and the sooner they are implemented after the period of economic weakness — the smaller will be the damage to the economy from rising federal debt.”
And the economic damage of inaction could be huge, the CBO said. If current policies are unchanged and the national debt continues to grow, the U.S. economic output could be as much as 6 percent smaller than current projections by 2025 and as much as 18 percent smaller by 2035.
Despite the growing danger, both major political parties have declared their resistance to the types of policy changes that would be necessary to rebalance the federal budget, at least as part of the debt-reduction talks currently under way between Vice President Biden and six lawmakers from both parties.
Democrats have ruled out major changes to health and retirement programs, while Republicans have ruled out any increase in tax revenue, a position Senate Minority Leader Mitch McConnell (R-Ky.) emphasized Wednesday.
“I think I can safely say, this Congress is not going to raise taxes, so why are we still talking about it?” McConnell told reporters at a breakfast hosted by the Christian Science Monitor. “So, look, taxes aren’t gonna be raised.”