The nation’s ballooning debt will need more than the across-the-board cuts known as sequestration to fix the nation’s economy in the long run, according to a report from the Congressional Budget Office.
The results of the report come as no surprise to Congress and beltway insiders who have been calling the 10-year, 5.6 percent cuts a bandage for a gunshot wound since the reductions went into effect in March.
If current laws remain in place, the report says the nation’s debt will grow to 100 percent of gross domestic product by 2038 — a 27 percent increase from where the nation’s debt-to-GDP ratio stands today.
“Anyone that thinks we’ve solved our long-term debt problems is kidding themselves,” said Mark Goldwein, policy director for the Committee for a Responsible Budget, a nonpartisan think tank in Washington that supports cuts to the nation’s entitlement programs. “Sequestration can only buy us time.”
Despite the nation’s fears about sequestration, the cuts imposed have improved the nation’s long-term outlook on the debt and deficit, but it’s just the beginning, Rep. Cynthia Lummis, R-Wyo., said. Lummis advocated the cuts as a way to rein in federal spending and reduce the debt and said without them the future economic outlook “gets even worse.”
Lawmakers didn’t expect sequestration to significantly improve the debt and deficit in the first place. The hope was that the far-reaching measures of austerity would kick lawmakers into action to work on a deal that would reform the nation’s entitlement programs and tax code.
As they stand, the cuts reduced $40 billion from discretionary spending this fiscal year, while failing to reform the tax code and take a bite out of Medicare, Medicaid and Social Security. The cuts amount to about 1 percent of the nation’s $3.8 trillion budget, said Bob Grady, a former executive associate director in the Office of Management and Budget under George H.W. Bush.
“No business can expect to stay afloat with 1 percent cuts,” Grady said.
What Lummis and the rest of the Wyoming congressional delegation want to see is entitlement reform.
“They are driving the unstable trajectory of our debt,” Lummis said. “It’s the biggest problem we face.”
But a polarized Congress and an encumbered President Barack Obama show little hope for working on a
comprehensive deal that will cut Social Security, Medicaid and Medicare while reforming the tax code that will appease Republicans and Democrats.
“There’s no way the House and Senate will work together on this in the 113th,” said Michael Linden, director for economic policy at the Center for American Progress, a left-leaning think tank in Washington.
Former Wyoming U.S. Sen. Alan Simpson has been on a crusade to fix the debt since 2010. He was opposed to sequestration and hiking taxes, as Congress did on Jan. 1 in the fiscal-cliff deal.
Without cuts to health care and Social Security, the nation’s long-term outlook doesn’t look good, he said.
Once the debt is at 90 percent of GDP, he said, lawmakers won’t be able to fix the situation. Wages will stagnate, taxes will increase and higher interest rates will keep money out of the hands of average Americans.
“Putting it in simple parlance: People will make less money,” Lummis said. “It will mean an anemic economy where workers are being paid less than their predecessors in the same jobs.”
The report suggested that if nothing is done to change current laws, federal spending for the major health care programs and Social Security will increase to 14 percent of the nation’s GDP by 2038 — doubling the 7 percent average of the past 40 years.
The report also said discretionary spending would decline to 7 percent, a 4 percent decrease over the past 40-year average and comprising a smaller share of the economy than at any other time since the 1930s.
The CBO’s projections offered a glimmer of hope in an economy that is slowly recovering more than five years after the financial meltdown. In 2010, a report from the CBO estimated the nation’s debt would be 200 percent of the national debt by 2035.
“It shows that we haven’t finished the job,” Linden said. “But there’s been a dramatic improvement.”
Cuts to entitlement programs will definitely affect the nation’s neediest citizens and may not affect the nation’s long-term debt. He called the drive to cut entitlements by Lummis and her fellow House Republicans a myopic view that would immediately hurt Americans.
“It’s a real example of how skewed our priorities are,” Linden said. “We could be hurting people today to eventually avoid potential problems 25 years from now.”
Lummis rebuked the comments, saying it would be irresponsible of her as a lawmaker to ignore “the train wreck” that is the federal debt.
“It’s completely false to say that this may or may not happen,” Lummis said. “It will happen. If we do not reform entitlement programs, they will become 100 percent of all our revenue by the year 2038.”
She vowed that America’s social safety net will remain intact if entitlements are reformed. She pointed at the House Republican budget, drafted by Rep. Paul Ryan, as a clear example of how entitlement programs would continue to care for Americans.
“The budget that the House Republicans passed in the spring will balance the budget in 10 years, retains our safety net, reforms entitlements and downsizes federal spending,” Lummis said. “It’s the answer our country needs.”