By Bernie Becker - 07/15/14 08:32 PM EDT
Washington’s failure to contain entitlement spending is biting into the nation’s long-term fiscal outlook, the Congressional Budget Office warned in a Tuesday report that found the nation’s debt would jump to 106 percent of gross domestic product (GDP) in 2039.
The CBO said the rising costs of entitlement programs like Medicare and Social Security as the U.S. population continues to age are the drivers of U.S. debt.
The nonpartisan watchdog said federal debt now held by the public stands at 74 percent of GDP.
Both that figure and the 25-year debt projection are slight increases from the CBO’s previous estimate, first released in September. The CBO found that U.S. debt was 73 percent of GDP in 2013 and predicted that would rise to 102 percent in 2039.
It largely attributed the change from last year in its long-term outlook to pared back projections for long-term economic growth.
At the same time, the CBO said that, because of a range of policies enacted by President Obama and Congress, plus the general recovery of the economy, the 2014 deficit of 3 percent of GDP would be the lowest since 2007.
The Obama administration projected last week that the 2014 deficit would fall to $583 billion in 2014, or 3.4 percent of GDP, before rising again in the coming years.
Still, the current level of debt held by the public is almost twice what it was in 2008, and matched in U.S. history only by a brief span around World War II.
Despite the dire figures, the watchdog’s projects prompted a muted response from Capitol Hill, where lawmakers are more focused on the border crisis, propping up the Highway Trust Fund and a House GOP lawsuit against President Obama.
Declining annual budget deficits and a two-year budget deal that lasts through the next fiscal year beginning in October has also taken the debt fight out of the headlines, even though the two parties have largely left entitlement programs, which are the long-term drivers of deficits, untouched.
Neither Democrats nor Republicans seem willing to budge from their current prescriptions for the U.S. fiscal situation, especially less than four months before midterm elections.
Obama has been willing in the past to trade entitlement changes for increased taxes on the wealthy. But some Democrats on Capitol Hill have been far less interested than the White House in floating entitlement changes.
Republicans, on the other hand, say they’re unwilling to consider any further tax increases after the fiscal cliff deal that materialized 18 months ago.
“I can’t explain the Republican position,” said Rep. Sandy Levin (Mich.), the top Democrat on the House Ways and Means Committee. “I’m not sure they have any kind of long-term strategy. I’m not sure what their strategy is.”
“It is my hope our friends on the other side of the aisle will abandon their misguided political opposition and heed this dire warning to work together to reform and strengthen the entitlement programs for our seniors and future generations,” Sen. Orrin Hatch (Utah), the top Republican on the Senate Finance Committee, said in a statement. “The time for courage is now.”
Democrats did take some heart in the lowered projections for how much the federal government would spend on major healthcare programs, such as Medicare and Medicaid, in 2039.
The CBO’s projections are now about 1.5 percent of gross domestic product lower than in 2010 — or equal to roughly $250 billion in today’s dollars.
Doug Elmendorf, the CBO’s director, said in September that the office’s projections for Medicare and Medicaid spending between 2010 and 2020 had dropped roughly $1.2 trillion over a three-year span. Broader economic and fiscal changes have largely driven that development, though the Affordable Care Act could have also played a role.
Deficits would remain relatively restrained, between 2.5 percent and 3 percent of GDP, between 2015 and 2018, the office added.
But after that, the CBO says that deficits would jump to a level it couldn’t sustain for the long term, and to a level that some economists fear could spark another fiscal crisis.
Despite lowered projections for healthcare spending, Social Security, Medicare, Medicaid and other healthcare programs like the Children’s Health Insurance Program are projected to cost around 14 percent of the economy in 2039. That’s essentially unchanged from last year’s long-term outlook, but also twice their 7 percent average from the last four decades.
Medicare, Medicaid and other healthcare programs are projected to surpass Social Security in costs in 2015, and to equal 8 percent of GDP in 2039 — far above the current 4.9 percent.
Following the budget battles of the last three years, federal spending on all other areas is estimated to dip to 7 percent in 2039, which would be its lowest level since the Great Depression.
— This story was originally posted at 10:34 a.m. and updated at 8:32 p.m.