No relief on the debt

Washington has taken an indefinite break from the budget debate that marked the early part of this decade. No one’s expecting a grand bargain any time soon. Nor a small bargain, nor even serious incremental reform. Deficits have come down from their historic highs during the Great Recession and its aftermath. Health care costs have not risen as quickly in the last few years, helping to right the country’s fiscal balance and making the long-term budget outlook a bit more manageable.

But the Congressional Budget Office on Tuesday rained on this bipartisan parade. In its latest long-term budget projection, the country’s arbiter of all things fiscal warned that federal spending remains dangerously unsustainable in the long term. Over the next 25 years, mandatory spending on entitlement programs such as Medicare is set to rise to 14 percent of gross domestic product, double the average over the past several decades. Debt service will become increasingly costly, gobbling up 4.5 percent of GDP in 2039. These obligations will drastically reduce the resources left for everything else in the budget.

Some may take solace in the finding that debt relative to GDP has stabilized and will hover around the current 74 percent through 2020. But the CBO concluded that “federal debt held by the public is projected to grow faster than the economy starting a few years from now, and because debt is already unusually high relative to GDP, further increases could be especially harmful.” If that process of debt accumulation proceeds, the CBO reckons, debt as a percentage of GDP would rise to 106 percent 25 years from now. That level of indebtedness would have a variety of negative economic effects. Among them: The country might well be incapable of taking strong action to support the economy during the next crisis. We should also note that the CBO projects a much larger debt problem if Congress decides to renew a variety of expensive policies — a realistic bet.

Many analysts argue that taking action on the long-term debt is senseless when interest rates are low and the economy remains sluggish. The CBO answers that excuse, too: “If lawmakers wanted to minimize both the short-term economic costs of reducing deficits quickly and the longer-term costs of running large deficits, they could enact a combination of changes in tax and spending policies that increased the deficit in the next few years relative to what it would be under current law but reduced the deficit thereafter.”

Finally, those who argue against addressing the long-term budget imbalance may point out that the CBO’s estimates are very uncertain. As the unanticipated recent slowing in the growth of health-care costs shows, expert predictions aren’t foolproof. But there is a downside to uncertainty, too: Things could turn out much worse than expected.