New projections released Tuesday by the Congressional Budget Office forecast that U.S. public debt will reach 70 percent of annual GDP by the end the current fiscal year in September.
While the predicted debt-to-GDP ratio is the highest since shortly after the end of the Second World War, the CBO notes that it will gradually shrink if Congress proceeds with planned spending reductions and permits the Bush tax cuts to lapse, reports the Wall Street Journal
The report provides ammunition for both political parties as they grapple with the expiration of tax cuts against the backdrop of a still-weak economy and a concern about the federal debt.
Republicans have said they want to fully extend the tax cuts and compensate by cutting a commensurate amount of spending. Democrats, for their part, would cut spending less dramatically but also allow the tax cuts to expire on the wealthiest Americans. At issue is whether the fiscal gap should be closed with spending cuts alone, or with a combination of cuts and revenue enhancement.
The CBO’s report, which blames the recent surge in public debt on a decline in tax revenue during the 2007-2009 recession and concomitant fiscal stimulus measures, also notes that a wide budgetary imbalance preceded the recession.
The CBO further warned of a rise in entitlement spending as the U.S. population ages. While Social Security, Medicare, and Medicaid spending comprised only 27 percent of federal outlays in 1975, their share of the federal budget ballooned to 46 percent over the last ten years and is predicted to rise even further.
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