With federal debt reaching levels of GDP not seen since the end of World War II, and the retirement of the baby-boomers escalating, the long-term budget outlook is “daunting,” the Congressional Budget Office said Wednesday.
With the average budget deficit equaling 37% of gross domestic product in the past four decades, the CBO expects by year-end “federal debt will reach roughly 70% of GDP, the highest percentage since shortly after World War II.”
The CBO blamed lower tax revenues and higher federal spending for the increase, but added: “The growing debt also reflects an imbalance between spending and revenues that predated the recession.”
Large deficits and growing debt would slash national savings, push up interest rates, spur further borrowing from abroad and dampen domestic investment. All of this would lower income growth in the United States., the CBO said.
To control deficits and debt, the agency said, policymakers must “increase revenues substantially as a percentage of GDP, decrease spending from projected levels, or adopt some combination of those two approaches.”
