Here’s a one-sentence summary: The more pessimistic outlook is the most realistic outlook. To achieve the more optimistic outlook, the United is going to have to cut spending tremendously or really, really stimulate the economy. And by stimulate, I mean real stimulation that has been proven: Income tax cuts, capital gains tax cuts, eliminating or severely reducing corporate taxes, and creating an economic climate that attracts business and does not drive job overseas.
From the Congressional Budget Office:
Today CBO released the Long-Term Budget Outlook. Under current law, the federal budget is on an unsustainable path — meaning that federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the U.S. population will cause federal spending to increase rapidly under any plausible scenario. Unless tax revenues increase just as rapidly, the rise in spending will produce growing budget deficits and accumulating debt. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress income growth in the United States.
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Although the policy choices that will be necessary are difficult, CBO’s long-term budget projections make clear that doing nothing is not an option: Legislation must ultimately be adopted that raises revenue or reduces spending or both. Moreover, delaying action simply exacerbates the challenge, as is discussed in the report.
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CBO estimates that in the next two years, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. The higher debt results in permanently higher spending to pay interest on that debt (unless the debt is later paid off).
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