October 20, 2014

Washington Budget Report: Dec. 28, 2010

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U.S. Financial Report: This Can’t Go On

With the ink barely dry on a $858 billion tax cut and spending bill, Concord Coalition Executive Director Robert L. Bixby says, Washington has been hit with an official reminder that steps to rein in the nation’s debt cannot be postponed much longer.

In a blog post today, he reviews the troubling 2010 Financial Report of the U.S. Government that was recently released by the Treasury Department. The report projects that under current policies “the debt-to-GDP ratio will continually increase over the next 75 years and beyond, which means current policies are not sustainable.”

The longer we wait to deal with the problem, the larger the revenue increases and spending cuts would need to be to put the budget on a sustainable path. Persistent deficits would cause the debt to steadily rise from 62 percent of GDP in 2010 to 130 percent in 2040.

“More alarming,” Bixby writes, “is that the projections used in the Financial Report are far from a worst-case scenario." The GAO declined to give an opinion on some of the government’s financial statements, citing “material weaknesses in internal control over financial reporting and other limitations.”

Three Key Players Can Help End 'Deficit Denial'

Whether the United States can move beyond “deficit denial” may depend on three elected officials who will each present a budget plan early next year: President Obama, incoming House Budget Chairman Paul Ryan (R-WI), and Senate Budget Chairman Kent Conrad (D-ND).

Obama will present his budget to Congress in February. Ryan and Conrad will then present their own draft budgets, each with an eye towards their parties’ policy agendas and the 2012 election.

“The path of least resistance for all three of these key players would be to dig in, tend to their political bases and blame each other for gridlock,” warns Robert L. Bixby, executive director of The Concord Coalition. “We’ve seen that movie and it doesn’t end well.”

A better alternative, Bixby says in a new op-ed for CNBC, would be compromise and careful consideration of the work of two bipartisan commissions that proposed a mix of spending cuts and revenue increases that would be phased in as the economy strengthens:

“If Obama and Ryan join Conrad’s call for a summit to negotiate a joint budget plan—building on the solid groundwork of the two commissions—they may be able to achieve a game-changing breakthrough.”

Snowballing Interest Costs Could Lead to Avalanche

A recent Congressional Budget Office report warns that interest payments on the national debt could swell to unprecedented levels unless lawmakers act to curb the growing imbalance between revenues and spending.

Although total interest costs will depend on a variety of factors, the combination of growing debt and climbing rates means that interest payments are likely to explode over the next 10 years.

Despite the recent surge in debt, the precipitous drop in rates over the past two years resulted in declining interest payments as a percentage of GDP.

Economic recovery and rising rates, however, could leave the government facing interest payments totaling nearly $800 billion—or 3.4 percent of the economy—by 2020. If lawmakers continue to extend certain policies (such as the 2001 and 2003 tax cuts), interest costs could climb even higher.