You simply can not spend your way out of recession. Your future is being thrown away.
WASHINGTON (Reuters) – The U.S. national debt will nearly double over the next 10 years, government forecasts showed Tuesday, challenging President Barack Obama’s economic and healthcare overhaul agenda.
The White House mid session budget forecast and the non-partisan Congressional Budget Office both forecast that government revenues will be crimped by a slow recovery from the worst recession since the 1930s Great Depression, while spending on retirement and medical benefits soars.
The White House projected a cumulative $9 trillion deficit between 2010 and 2019, while the CBO took a more optimistic view, pegging the deficit at $7.1 trillion because it assumed higher revenues as tax cuts expire.
The spending blitz could push the national debt, now more than $11 trillion, to close to $20 trillion. The debt is the sum the government owes, while the deficit is the yearly gap between revenues and spending.
“The alarm bells on our nation’s fiscal condition have now become a siren,” said Senator Mitch McConnell, the Republican leader in the Senate.
“If anyone had any doubts that this burden on future generations is unsustainable, they’re gone,” McConnell said, adding that economic stimulus funds should be diverted to pay down U.S. debt.
However, both the White House and CBO estimates anticipate that the deficit, now at its highest level as a percent of economic output since World War Two, will decline relatively swiftly in the next three years as growth resumes and federal bailout programs shrink.
White House budget director Peter Orszag said the deficit was too high and cited this as a reason to pass Obama’s healthcare overhaul plan, which is in trouble with lawmakers while opinion polls show it losing popular support.
“I know that there will be some who say this report proves that we cannot afford health reform. I think that has it backward,” Orszag told reporters on a conference call.
“The size of the fiscal gap is precisely why we must enact well-designed and fiscally responsible health reform now.”
Obama’s healthcare plan, his policy priority, has run into opposition from critics who complain its $1 trillion price tag is too high and who worry it will limit consumer choice.
The debate is gaining steam as Republicans seek momentum for next year’s mid-term elections, where they hope to chip away the dominant position Obama’s Democrats enjoy in both the House of Representatives and the Senate.
NEAR-TERM FORECASTS SIMILAR
The White House forecasts a record $1.58 trillion deficit in fiscal 2009, matching the numbers of the CBO, while it shows the deficit at $1.5 trillion in 2010, a touch higher than the $1.48 trillion projected by CBO.
But both estimates show annual deficits staying above $500 billion every year until 2019, compared with a then-record $459 billion last year. The White House shows the gap averaging 5.1 percent through 2019, compared with 3.2 percent last year.
By 2019, it estimates that the ratio of national debt to gross domestic products will rise to 69 percent from 48 percent in 2009.
“The administration has always said that you have to get deficits under 3 percent of GDP to be safe. They now admit that they will not in the next 10 years,” said Douglas Holtz-Eakin, a CBO director under Bush and chief economic adviser to Republican Senator John McCain for his 2008 presidential bid.
The budget news was overshadowed by Obama’s surprise announcement Tuesday to renominate Ben Bernanke to a second four-year term as Federal Reserve chairman, a move seen as aiming for continuity at the central bank during a tentative stage of recovery.
“I’m stunned at how hard they have worked to bury this,” Holtz-Eakin said of the White House’s budget estimate timing.
One reason CBO and OMB can end up with different numbers is technical. The CBO employs a baseline method which only takes into account policies that have already become law.
On the other hand, the administration’s forecasts can reflect the economic impact of policies it hopes to implement, even if they have not yet been approved by lawmakers.
For example, the CBO assumes the there would be no “patch” for the Alternative Minimum Tax, meaning millions more Americans would have to pay higher taxes, even though Congress has agreed to a temporary reprieve every year to prevent this happening. In addition, CBO assumes the tax cuts delivered by former President George W. Bush will expire at the end of 2010.
Orszag said that the White House numbers also assumed that some of the Bush tax cuts would be extended. Obama has pledged not to raise taxes on U.S. households earning less than $250,000 a year.
(Writing by David Lawder, Editing by Vicki Allen)