The Danger of Deficits To Our Economy

Recently the White House Office of Management and Budget released its Midsession Review, an update and review of the budget that President Obama submitted to Congress. The document extols the virtues of the administration’s economic policies, noting that a combination of economic growth, discretionary budget cuts and the reversal of the Bush tax cuts has halved the federal deficit. Moving forward, the administration hopes to further the economic recovery through additional budgetary savings from health-care reforms, closing tax loopholes for the wealthy and sensible immigration reform. What the Mid-Session Review does not discuss, however, is the mounting federal debt – and the dangers it poses to the economy.

The Congressional Budget Office’s 2014 Long-Term Budget Outlook provides a more accurate picture of the challenges facing the economy. While the deficit may have fallen in recent years, CBO identifies a triple threat to long-term economic growth: an aging population, increased per capita federal spending on health care, and expanding federal health-care programs. Together, these trends ensure the return of higher deficits and increasing federal debt. According to the CBO, by the year 2039, federal debt will be greater than the nation’s output, reaching 106 percent of GDP. This level of debt has not been seen since World War II. Prior to the 2008 economic crisis, federal debt was 39 percent of GDP, but the structural imbalance between revenues collected and federal spending is steadily pushing the federal debt to unsustainable levels.