Following the recent fiscal cliff deal between the Republican leadership and the White House, the United States long-term fiscal outlook still remains troublesome as new analysis suggests the national debt will head toward 200 percent of its GDP.
A report from the Peter G. Peterson Foundation released Tuesday showed that the American Taxpayer Relief Act of 2012 (ATRA) and the debt limit agreement from Summer 2011 only delayed the economic collapse and fiscal crisis by a short period of time. The study said the debt-to-GDP will have severe consequences for the country.
Using data from the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), the foundation discovered ATRA only improved the nation’s fiscal outlook by one year, the budget sequester would not help pay down the national debt and the debt will rise 15 percent over the next 10 years from 72 percent of GDP to 87 percent.
The items of long-term spending are major health (11 percent in 2037), Social Security (six percent in 2037), Defense (four percent in 2037), Nondefense discretionary (3.8 percent in 2037) and other nondiscretionary spending (two percent in 2037). These programs will account for approximately one-quarter of the federal budget in the next two decades.
“Lawmakers and the American people should not be under any false impression that our debt challenges are behind us,” the report stated. “Much more work will be needed to put the federal debt on a sustainable long-term path. Failing to achieve that goal would put the prosperity and economy of the nation at risk.”
In Tuesday’s report, a chart lists the many policy solutions to stave off the debt crisis. The ideas, put forward by the Heritage Foundation, American Action Forum, Economic Policy Institute, Bipartisan Policy Center and Center for American Progress, all show a significant decline in the debt-to-GDP ratio over the next two decades.
“The combined effect of all of the deficit reduction measures of the last two years has simply been to delay when the U.S. reaches these alarming levels of debt,” the report added. “If debt remains on this trajectory, our economy would suffer serious damage long before it reaches that level.”
The fiscal cliff agreement included $620 billion in new taxes and only $15 billion in budget cuts. People earning more than $1 million will fork over an extra $122,560 in federal taxes, while individuals making between $500,000 and $1 million will be taxed an additional $7,000. Most wage earners will see a two percent increase on payroll taxes – Economic Collapse News published an in-depth look at the consequences of this tax hike for most American workers.
During the 2012 presidential election, only two candidates put forth comprehensive plans to actually tackle the budget deficit and national debt: retired Texas Republican Congressman Ron Paul and former New Mexico Republican Governor and Libertarian Party nominee Gary Johnson.
Dr. Paul’s “Plan to Restore America” consisted of $1 trillion in budget cuts in his first year in office by ending the wars overseas, eliminating federal departments (Energy, Housing and Urban Development, Commerce, Interior and Education) and shutting down foreign aid programs. It also included cutting the corporate tax rate down to 15 percent, getting rid of the estate tax, extending the Bush tax cuts and repealing a number of bills, such as Obamacare, Dodd-Frank and Sarbanes-Oxley.
He published an op-ed piece last week in which he observed that Americans as well as the government don’t view the federal debt as a large issue. The three-time presidential candidate accused the Republicans of not having any credibility when it comes to fiscal matters, while also stating the Democrats are indifferent to the issue.
“Keep in mind that the federal government relentlessly spends about $100 billion more each month than it collects in taxes. This means roughly 40% of every dollar Washington spends is borrowed, to be ‘paid back’ only in highly devalued, newly created money,” stated the bestselling author. “Ultimately this can only lead to the destruction of the US dollar, as history plainly teaches. But in the face of this reality Obama just shrugs, turning to demagoguery and talk of little old ladies’ Social Security checks. Like Obama, far too many Americans view federal debt as a nonissue.”
Meanwhile, former Gov. Johnson proposed cutting the budget by 43 percent in all federal expenditures: education, defense and entitlements.
By the end of President Barack Obama’s second term, the national debt will reach $20.3 trillion and the budget deficit will return to the $1 trillion mark, despite pledges to cut the deficit in half and to lower the national debt burden.
Although the Peterson Foundation’s report didn’t list the dire ramifications of allowing the debt to rise, other experts have suggested that the only things the U.S. government will be able to afford are the interest on the national debt and some entitlement programs. The CBO even projects that the Old-Aged and Survivors and Disability Insurance (OASDI) trust funds will be exhausted by 2038 – the Disability Insurance by 2016.
The interest is expected to rise to nearly $900 billion by 2022.