WASHINGTON—Government spending and debt have grown so much in recent years that the federal budget is on an “unsustainable course” and will require reduced benefits and higher taxes in the near future, according to Congressional Budget Office Director Phillip Swagel.
“Even though the U.S. economy has been strong, with a low unemployment rate and rising wages, the federal budget deficit remains large, and debt is growing,” Swagel said late Sept. 9 during a presentation at the Committee for a Responsible Federal Budget’s (CRFB) annual dinner.
“We project that, under current law, federal debt held by the public would equal 95 percent of Gross Domestic Product (GDP) by 2029, the highest level since just after World War II,” he said.
Swagel told the CRFB that rising debt and the interest payments required to fund borrowing will in the near future threaten to reduce household incomes for most Americans.
“CBO projects that the rising debt would dampen economic output over time. Also, rising interest costs associated with that debt would increase the federal government’s interest payments to foreign debt holders and thus reduce the income of U.S. households by increasing amounts,” Swagel said.
“[High] and rising debt poses substantial risks for the nation. In particular, it increases the risk of a fiscal crisis—that is, a situation in which the interest rate on federal debt rises abruptly because investors have lost confidence in the U.S. government’s fiscal position.”
Even if things don’t reach such a precipitous crisis, according to Swagel, there is an increased likelihood of “less abrupt, but still significant, economic and financial consequences, such as expectations of higher inflation and more difficulty financing public and private activity in international markets.”
Due to the nation’s current highly polarized public policy debates, the CBO director said, “there is no agreement on what the nation’s appropriate long-term goal for debt ought to be, but it is clear that the budget is on an unsustainable course.”
There are no courses of action that aren’t unpleasant, he said, with a result that “the government will ultimately have to make changes to services, benefits, and programs; require taxpayers to pay more to finance those activities, or implement some combination of the two approaches.”
Swagel warned that the timing of spending cuts and tax hikes will change the negative impacts from older to younger generations of Americans.
“Faster or slower implementation of policies to reduce budget deficits would impose different burdens on different generations over the course of their lifetimes,” Swagel said. “Also, policy changes could have sharply different effects on different groups within any given generation.”
If federal policymakers decide sooner to implement concrete actions to reduce spending and debt, older workers and retirees would have to sacrifice more through less generous Social Security payments.
But if policymakers delay needed decisions, the impact would be reversed, according to Swagel.
“Reducing deficits later would require smaller sacrifices from older people but greater ones from younger workers and future generations,” he said. “Moreover, the further in the future a policy change occurred, the more the well-being of older generations would be improved and that of younger generations worsened.”
Swagel became CBO director in June, for a four-year term, as a result of an agreement between the Senate president pro tempore, Sen. Charles Grassley (R-Iowa), Speaker of the House Nancy Pelosi (D-Calif.), and other congressional leaders, including House Budget Committee Chairman John Yarmuth (D-Ky.) and Senate Budget Committee Chairman Mike Enzi (R-Wyo.).
Swagel, a former resident scholar at the American Enterprise Institute, was assistant secretary of the Treasury for economic policy, as well as chief of staff for the Council of Economic Advisers in the White House, under President George W. Bush.
