America’s national debt could be larger than the gross domestic product (GDP) of the United States by 2039 if present levels of federal spending are maintained, the Congressional Budget Office (CBO) predicts in a report that calls the path “unsustainable.”
At least one economist says America’s financial situation is closer to Greece’s than US officials want to acknowledge.
The gross domestic product is the value of all the goods and services produced in the United States.
“With deficits as big as the ones that CBO projects, federal debt would be growing faster than GDP, a path that would ultimately be unsustainable,” the CBO’s Long Term Budget Outlook predicts.
The current amount of federal debt equals 74 percent of the gross domestic product but by 2039 it will equal 106 percent of the GDP.
The amount of debt held by the federal government has grown from $10.6 trillion in 2009 to around $18 trillion today.
The CBO report actually used the word “unsustainable” twice, and pointed to government health care spending as a major reason for record debts.
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“The unsustainable nature of the federal tax and spending policies specified in current law presents lawmakers and the public with difficult choices,” the report said. “Unless substantial changes are made to the major health care programs and Social Security, spending for those programs will equal a much larger percentage of GDP in the future than it has in the past.
It continued: “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.”
Lawmakers, the report said, must “make significant changes to tax and spending policies: reducing spending for large benefit programs below the projected levels, letting revenues rise more than they would under current law, or adopting some combination of those approaches.”
Forbes.com contributor Jeffrey Dorfman believes the debt situation is even worse than the CBO and other economists acknowledge, because the federal government “does not have access to all the national income, only the share it collects in taxes.” In other words, the GDP is the wrong number to examine.
“A better comparison,” he wrote, “is to examine each country’s debt to government tax revenue, since that is the government’s income.”
Using that data, Japan is No. 1, Greece No. 2 — and the US No. 3.
“If the U.S. were a family, it would be deep into the financial danger zone,” he wrote. “To add a bit more perspective, the countries in fourth, fifth, and sixth place are Iceland, Portugal, and Italy, all between 300 and 310 percent. In other words, these three are starting to see a flashing yellow warning light, but only three developed countries in the world are in the red zone for national debt to income. The U.S. is one of those three.”
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