Report warns debt could equal US GDP by 2021

Negotiations on increasing the debt limit have been underway for several weeks led by Biden © AFP/Getty Images/File Alex Wong

AFP

WASHINGTON (AFP) – The Congressional Budget Office warned  that an explosion in public borrowing could lead to debt levels as high as 100 percent of the gross domestic product by 2021, if the current course remains unchanged.

The report by the independent budgetary think tank notes that federal debt will reach roughly 70 percent of GDP by the end of the year, the highest percentage since just after World War II.

That figure compares with a debt level of 40 percent of GDP at the end of 2008, which compares favorably with the 40-year average of 37 percent.

The non-partisan CBO also said that if tax cuts enacted since 2001 continue to be extended, the country’s debt could be nearly twice the GDP by 2035.

The country’s total debt reached its legal limit of $14.29 trillion in mid-May, and pressure has grown to raise that level ahead of an August 2 deadline.

After that, says the US Treasury Department, the United States would be in default.

Negotiations on increasing the debt limit have been underway for several weeks, led by Vice President Joe Biden, but little progress has been made.

Since Republicans control the House of Representatives, they have refused to raise the debt limit without achieving significant budget cuts in return.

These cuts involve reducing benefits from the retirement plan known as Social Security and the government-funded medical plans known as Medicare and Medicaid, something that Democrats say they will not accept.

The CBO report says these programs will have a major impact on future deficits.

“The retirement of the baby-boom generation portends a significant and sustained increase in the share of the population receiving benefits from Social Security, Medicare, and Medicaid,” said the report.

“To keep deficits and debt from climbing to unsustainable levels, policymakers will need to increase revenues substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches,” the CBO recommended.

© AFP — Published at Activist Post with license