CBO: Deficit is Down, But Debt Remains High

The Congressional Budget Office released another
report on the
nation’s debt and deficit picture today, and the short version goes
something like this: We’ve made some short-term progress in
reducing annual deficits, but the long-term debt picture is still
quite bleak. It’s the calm before the storm more than a sign that
all is well.

There’s no question that the fiscal situation is better than it
was a few years ago. This year’s budget deficit will clock in at
just $506 billion—not a small amount, but far less than the $1
trillion overruns we saw during President Obama’s first term. This
year’s deficit will even be slightly smaller, relative to the size
of the entire economy, than is typical over the last four decades.
Projected Medicare costs—a major driver of long-term debt—have
continued to be reduced
compared to the increases the CBO expected just a few years
ago.

But some of those Medicare savings are based on cuts that, as
Medicare’s Trustees have
hinted rather strongly, may not ever materialize. And some of
them are based on projections of slowing health spending that could
easily be wrong, as much of the slowdown has been attributed to the
economy.

Meanwhile, even as annual deficits have declined, total federal
debt levels have remained high. And they are expected to rise to
unprecedented levels in the years to come. By the end of this
fiscal year, the CBO says, federal debt held by the public will
equal 74 percent of GDP, double its 2007 level, and higher than at
any point since 1950. Then it gets worse. “The persistent and
growing deficits that CBO projects would result in increasing
amounts of federal debt held by the public,” the report says.
Starting in 2018, deficits start to rise above average levels
again, pushing debt as a percentage of GDP up to 77 percent in
2024.

The higher the debt levels, the bigger the problems for the
nation, especially when debt levels are this high. As the CBO notes
(and has said repeatedly in previous reports), higher debt means
higher federal spending on interest to maintain the debt, lower
economic growth rates, less flexibility for policymakers in all
matters, and an increased risk of a fiscal crisis. Basically, debt
costs money to carry, and robs the nation of other options: the
more a nation owes, and the more it spends on debt, the fewer
choices it has to do other things, which creates a kind of
precarious state in which really big problems—like a fiscal
crisis—are more likely, and harder to deal with when they do occur.
It’s a fiscal feedback loop, and it’s threatening to drag us
down.

The Obama administration has tended to treat the recent decline
in annual deficits as a kind of problem solved. It’s not. The
problem is a little smaller, but it hasn’t gone away so much as
been postponed. That’s a good thing, but it’s not enough.