July 15, 2024

Budget Office Warns About Debt

The report, released Wednesday by the nonpartisan agency that calculates the cost and economic impact of legislation and government policy, offers a fresh reminder of what is at stake as Congress considers whether to raise the federal debt ceiling. Vice President Joseph R. Biden Jr. is leading discussions aimed at slashing more than $2 trillion from the federal deficit over the coming decade as the price for permitting the government to take on more debt to pay current obligations.

Most ominously, the report warned of a “sudden fiscal crisis” in which investors would lose faith in the United States government’s ability to manage its fiscal affairs. In such a fiscal panic, investors might abandon United States bonds and force the government to pay unaffordable interest rates.

At that point, it warned, policymakers would have to win back the confidence of the markets by imposing spending cuts and tax increases far more severe than if they were to act now.

The findings are not significantly new, but the budget office’s analysis underscores the magnitude of the nation’s fiscal problems as negotiators struggle to raise the current $14.3 trillion debt limit and avoid a first-ever default on United States obligations.

With the government now required to borrow more than 40 cents of every dollar it spends, the budget office predicted that without a change of course the national debt would rocket from 69 percent of gross domestic product this year to 109 percent — the record set in World War II — by 2023.

Those projections are based on the assumption that tax cuts from the Bush administration are extended and that other current policies, like maintaining doctors’ fees under Medicare, are continued as well.

Article source: http://feeds.nytimes.com/click.phdo?i=0568ba25432681e3e36390aefd5d8e18

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