June 05,2012

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Julia Lawless, Antonia Ferrier, 202.224.4515

Hatch on CBO’s Long-term Budget Outlook

Utah Senator Says Time for President to Get Serious About Tackling Our Debt Crisis, Reducing Spending, Reforming Entitlements

WASHINGTON – U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, said today that the Congressional Budget Office’s (CBO) Long-Term Budget Outlook should serve as a stark reminder of the urgent need to tackle out-of-control spending driven by the nation’s unsustainable entitlement programs. Hatch called on President Obama to confront the crisis and demonstrate real leadership to put America back on a sustainable fiscal path. 

“This report’s findings are chilling: debt reaching 200 percent of our economy and potentially causing a full blown financial crisis; health care spending rising unabated to record levels; and Medicare and Social Security on a glide path to insolvency,” Hatch said.  “Driven by unsustainable spending, America has reached a dangerous crossroads that demands immediate action, but the President is nowhere to be found.  He’s decided that instead of leading, he’ll play politics and blame everyone else for our weak economy, for the debt, and for our high unemployment rate.  But the American people elected the President to lead, and it’s well past time for him to provide the leadership taxpayers deserve to reform our entitlement programs dominating the federal budget, to tackle our debt that threatens our economic security, and to ensure that every American taxpayer doesn’t face the largest tax increase in history by the end of the year.”

Below are several key findings from CBO’s report that was released today:

Unsustainable debt:  “Federal debt would grow rapidly from its already high level, exceeding 90 percent of GDP in 2022.  After that…[d]ebt as a share of GDP would exceed its historical peak of 109 percent by 2026, and it would approach 200 percent in 2037,”  and that is a “…clearly unsustainable path for federal borrowing.”

Impact of record debt on the economy:  As a result of this level of debt, “[r]eal [Gross National Product] GNP would be reduced by 4 ½ percent in 2027 and by about 13 ½ percent in 2037, according to CBO’s central estimates.”

Interest payments on the debt: “As debt grew, so would net federal spending on interest, which would rise from about 1 ½ percent of GDP today to ten percent by 2037.”

Need for timely policy changes to put us on a sustainable course:  “The explosive path of federal debt under the alternative scenario underscores the need for large and timely policy changes to put the federal government on a sustainable fiscal course.”

Growing debt increases risk of fiscal crisis:  “Growing debt would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates.”

Health care costs continue to grow faster than GDP:  “Federal spending for Medicare and Medicaid rose from 2.2 percent of GDP in fiscal year 1985 to 5.6 percent in 2011…[f]or the extended alternative fiscal scenario…federal spending on health care programs would grow faster, reaching 10.4 percent of GDP by 2037.”

Unsustainable health law subsidies: The health law created new mandatory spending in the form of premium subsidies for families making up to 400 percent of federal poverty level (FPL) or almost $90,000 a year. CBO concludes that “…over time, more people would be eligible for exchange subsidies, and the subsidies would cover a higher share of the premiums…”

CBO reminds us that Social Security trust funds will be exhausted soon:  CBO projects that the Social Security trust funds will be exhausted in calendar year 2033 and “[o]nce the trust funds are depleted, the Social Security Administration would no longer have legal authority to pay full benefits when they are due.”  Moreover, “CBO anticipates that the Disability Insurance Trust Fund will be exhausted in fiscal year 2016.”

CBO reminds us of the dangers of higher taxes:  “…on balance, higher marginal tax rates discourage economic activity.”