CBO: Federal Debt Could Increase to 199% of GDP By 2037

The CBO (Congressional Budget Office) released their "2012 Long-Term Budget Outlook" earlier this week, and the report has already become part of the Presidential race.

According to the CBO, federal debt held by the public could soar to 199% of GDP (Gross Domestic Product) by 2037 under their "extended alternative fiscal scenario". Under this scenario, "current policies", not current laws, would be maintained. According to the CBO, this would mean that tax cuts and other forms of tax relief would be extended, and automatic spending reductions and certain spending restraints would be prevented from occurring.

The CBO projects that federal debt will reach 73% of GDP by the end of this year.

Under the CBO's "extended baseline scenario", debt/GDP would drop to 61% by 2022 and 53% by 2037.

The CBO's "extended baseline scenario" assumes that current laws remain unchanged, "implying that tax increases and spending cuts scheduled under current law" will be allowed to occur.

Under both scenarios, spending will continue to increase, thanks in large part to the aging of the population and increased health care costs. However, under the "extended baseline scenario", revenues would reach "historically high levels", while under the "extended alternative fiscal scenario", revenues would remain near "their historical average", and the gap between non interest spending and revenues would widen.

The CBO predicts that under the "extended alternative fiscal scenario", rising debt would have a number of negative consequences, including:

-higher interest payments which would lead to the need for higher revenues and/or lower costs

-inability to respond to unforeseen challenges

-increasing probability of a "fiscal crisis"

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The "extended alternative fiscal scenario" would be a disaster for the country - can this scenario be avoided?

Source: CBO.gov - The 2012 Long-Term Budget Outlook

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