Chat with Richard: The Impending Fiscal Cliff

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CBO July 2014

On July 15, the Congressional Budget Office (CBO) released their annual budget outlook. Read the full report.

The report paints a difficult future for the US Government and the overall economy. This outlook projects out to 2039, 25 years which would put me at 55 years old.

Let me first present our current situation.

The total amount of federal debt held by the public is roughly 74 percent of the annual output of the economy, known as Gross Domestic Product (GDP). That is the highest level at any point in our history except for a short period around World War II. The CBO also says that that level is nearly double what we saw at the end of 2008.

The next few years look okay. If laws stay as they are, the federal debt is going to decline slightly relative to GDP. That doesn’t mean our debt will go down, as we are still projected to run annual deficits.

But looking beyond 2018, the picture gets much more difficult for a few reasons; our population is getting older, health care costs will continue to rise and become a larger government expenditure, and because interest rates are expected to rise from their historic lows in these years, debt interest payments will increase towards the end of 2018.

The CBO projects that by the end of 2039, the percentage of debt compared to GDP will be the highest in history.

Our leaders in Washington have work to do. Without substantial changes to our current health care programs and Social Security, spending on those two line items will take a historic and unsustainable percentage of overall government spending.

The key passage from the entire report is this:

“With deficits as big as the ones the CBO projects, federal debt would be growing faster than GDP, a path that would ultimately be unsustainable.”

There are sensible solutions already on the table that our leaders need to take action on.

Social Security can be saved, but we need to have the goodwill to do so.

We need a health care solution that meets two goals: more Americans with insurance while also reducing the overall costs of care.

If this CBO report does anything, I hope it presents the need for action. We deserve better.

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