CBO: U.S. Debt to Approach 70 percent of GDP

(Newsroom America) -- The United States faces "daunting economic and budgetary challenges" in the coming years as the nation struggles to recover from a deep recession and high unemployment, and that the national debt will reach 70 percent of GDP, the head of the Congressional Budget Office wrote in his blog Wednesday.

"The economy has struggled to recover from the recent recession: The pace of growth in output has been anemic compared with that during most other recoveries and the unemployment rate has remained quite high," wrote CBO Director Douglas Elmendorf.

He said a combination of things - reduced government revenues due to the recession, costly new policies and bailouts - have contributed to "an imbalance between revenues and spending that predated the recession."

Elmendorf said that, "if current laws remain unchanged," the federal budget deficit was on part to exceed $1.5 trillion, or about 9.8 percent of gross domestic product, or the sum of all annual economic activity in the U.S.

"That would follow deficits of 10.0 percent of GDP last year and 8.9 percent in the previous year, the three largest deficits since 1945," he said noting that this year's budget deficits would bring the total government debt from 40 percent of GDP in 2008 to nearly 70 percent by the end of the 2011 fiscal year.

Elmendorf did say deficits are projected to fall over the next few years if there are no changes to federal outlays. Still, he said, "deficits would average 3.6 percent of GDP from 2012 through 2021, totaling nearly $7 trillion over that decade," eventually rising to at least 77 percent of GDP.

"However, that projection is based on the assumption that tax and spending policies unfold as specified in current law," he wrote. "Consequently, it understates the budget deficits that would occur if many policies currently in place were continued, rather than allowed to expire as scheduled under current law."

President Obama, in his State of the Union address Tuesday night, called for holding the line on discretionary spending increases over the next five years, a measure he said would save $400 billion in the next decade.

But Republicans have said more dramatic cuts are necessary in order to end the deficit spending - and that those cuts and changes in policy are liable to be painful.

Other analysts have said that in order to elimiate the budget deficit, a combination of cuts and tax increases will be necessary.

© 2010 Newsroom America.

Contact Jon E. Dougherty

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