On August 29th Dana Milbank of the Washington Post wrote an alarming column on the federal government’s fiscal challenges. Moreover, it was not his own opinion he was voicing, but rather that of the Semiannual Report of the nonpartisan Congressional Budget Office that was issued on August 27, 2014.
The CBO Report, Milbank says, shows that “the long-term fiscal disaster, predicted for some time, has crept into the short term.” Here are the particulars for that conclusion from the Report itself:
- The foundation for the report is the CBO’s own economic forecast that “the economy will grow slowly this year . . . and then at a faster but still moderate pace over the next few years;” that “inflation is expected to remain below the Federal Reserve’s goal, and interest rates on Treasury securities . . . are projected to rise considerably.”
- Another basic CBO assumption is “current laws governing federal taxes and spending generally remained unchanged.”
- Federal debt held by the public will reach 74 percent of gross domestic product this year, more than twice what it was at the end of 2007 and higher than in any year since 1950. In a decade, it will hit 77 percent; in 25 years, 100 percent.
- “85 percent of the federal government’s spending increases between now and 2024 will be consumed by just three items: Social Security (which will claim 28 percent of the increase), Medicare and other health-care programs (32 percent) and interest on the debt (25 percent). Spending on everything else — military and domestic programs alike — would fall to the lowest proportion of the economy since at least 1940, when such statistics were first collected.”
- “The persistent and growing deficits that CBO projects . . . would have serious negative consequences, including . . . Increased federal spending for interest payments, Restraining economic growth in the long term, Giving policymakers less flexibility to respond to unexpected challenges, and Eventually increasing the risk of a financial crisis (in which investors would demand high interest rates to buy the government’s debt).”
These problems, says Milbank, will come “because of the cowardice of leaders on both sides, who have avoided serious changes to the tax code and to Medicare and the other ‘mandatory’ spending programs.”
Milbank’s comments came before the release of a report by Northwestern University economist, Robert Gordon, claiming that the CBO’s modest projection of U.S. economic growth over the next decade is unattainable. Gordon for several years has argued that reduced labor productivity, reduced labor market participation and meager capital investment have adversely affected the U.S. economy’s ability to grow. Thus, under Gordon’s analysis, the fiscal challenges facing the federal government will only be worse.