A new congressional report released on Friday said the US’ long-term fiscal woes were even worse than predicted by US President Barack Obama’s grim budget submission last month.
The nonpartisan US Congressional Budget Office said that Obama’s budget plans could generate deficits over the upcoming decade that would total US$9.8 trillion. This was US$1.2 trillion more than predicted by the administration.
The agency said its future-year predictions of tax revenues were more pessimistic than the administration’s. That was because the report projected slower economic growth than the White House.
The deficit picture has turned alarmingly worse since the recession that started at the end of 2007, never dipping below 4 percent of the size of the economy. Economists say that deficits of that size are unsustainable and could put upward pressure on interest rates, crowd out private investment in the economy and ultimately erode the nation’s standard of living.
Still, the Feb. 1 White House budget plan was a largely stand-pat document that avoided difficult decisions on curbing the unsustainable growth of federal benefit programs like the healthcare program for the elderly and the health program for the poor and disabled.
Instead, Obama has created an 18-member fiscal reform commission this is charged with coming up with a plan to shrink the deficit to 3 percent of the economy within five years. But the Republicans to be named to the panel by congressional GOP leaders are unlikely to go along with any tax increases that might be proposed, which could ensure election-year gridlock.
The report says that extending tax cuts enacted in 2001 and 2003 under former Republican president George W. Bush and continuing to update the alternative minimum tax so that it would not hit millions of middle-class taxpayers would cost US$3 trillion over from next year through 2020. The tax cuts expire at the end of this year and Obama wants to extend them — except for individuals making more than US$200,000 a year and couples making US$250,000.
For the current budget year, the report predicts a record US$1.5 trillion deficit. That is actually a little better than predicted by the White House, but at 10 percent of GDP, it is bigger than any deficit in history other than those experienced during World War II.
The new report predicts that debt held by investors, including China, would spike from US$7.5 trillion at the end of last year to US$20.3 trillion in 2020. That means interest payments would more than quadruple from next year through 2020.
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