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US Debt Bomb? CBO Predicts Dangerous National Debt Spike

06-27-2018

WASHINGTON – The US federal government's debt is on course to reach its highest level ever compared to the overall economy, according to the Congressional Budget Office.

The CBO predicts that in 10 years, the national debt will reach nearly 100 percent of the gross domestic product.
    
In other words, the debt will be as big as the total annual output of the entire economy.

And by 2048, the debt will amount to more than 150 percent.

That's far higher than the previous record, which was set in 1946 after the heavy spending during World War II.
    
Some economists worry that such a high debt level could be a drag on economic growth.

"The prospect of large and growing debt poses substantial risks for the nation and presents policymakers with significant challenges," CBO Director Keith Hall said in a statement distributed with the report.

The Associated Press reports that the CBO statistics assume Congress will move to stop to the debt from growing more rapidly by slashing spending and allowing many of the recent tax cuts to expire.

However, the agency predicts that should the current tax and spending policies be extended – which GOP lawmakers are hoping to do – the fiscal situation could grow more dismal.

"If lawmakers changed current law to maintain certain policies now in place—preventing a significant increase in individual income taxes in 2026, for example—the result would be even larger increases in debt," said the CBO report.

But economist Stephen Moore, who served as a senior economic advisor to the Trump campaign, suggests the CBO model is flawed.

"The CBO needs deficits and economic malaise to justify its existence. As such, the CBO refuses to believe that faster growth is humanly possible," he wrote in an April 12 op-ed for The Hill

"One of the major flaws in the CBO's model is that it fails to account for the decreased sheltering of income that occurs when taxes are cut," he explained. "A lower tax rate means that there will be less sheltering on the margin because it will be cheaper to pay the tax than it will be to pay those lawyers, accountants and deferred income specialists."

"Then there is tax evasion, inversions, and state and local tax revenues, all of which respond to tax rates and will reduce deficits," he noted. "These effects can be enormous. The fact that the CBO does not account for them in its model is a sign that it is greatly underestimating the long-run growth of tax revenues. Most importantly, the only feasible way to get the debt and deficits under control is much faster economic growth."

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