NEW YORK (CNNMoney.com) -- If President Obama's 2011 budget were put into effect as proposed, the U.S. federal government would add an estimated $9.8 trillion to the country's accrued debt over the next decade, according to a preliminary analysis from the Congressional Budget Office.
Of that amount, an estimated $5.6 trillion will be in interest alone.
By 2020, the agency estimates debt held by the public would reach $20.3 trillion, or 90% of GDP. That's up from 53% of GDP in 2009.
Research done by economists Kenneth Rogoff and Carmen Reinhart has shown that such high levels of debt can cause a drag on economic growth.
The CBO cited two big contributors to the jump in debt.
One is the president's proposal to extend the 2001 and 2003 tax cuts for the majority of Americans. The other is the proposal to protect middle- and upper-middle-income families from having to pay the Alternative Minimum Tax (AMT).
Together those proposals would cost $3 trillion between 2011 and 2020.
"It points out the unwillingness of the administration to raise the revenues to pay for the size of government being proposed," said Robert Bixby, executive director of the Concord Coalition, a deficit watchdog group.
If Congress doesn't act, all of the Bush tax cuts are slated to expire at the end of this year and there will be no protection from the AMT.
But current law is not politically realistic, many say. That's why the administration prefers to compare the cost of its proposals to what lawmakers are likely to do -- namely, extend tax cuts and fix the AMT.
Hence, the White House Budget Office estimates that under the president's proposals, $8.5 trillion would be added to the country's accrued debt over the next decade, or $1.3 trillion less than the CBO estimate.
Either scenario is unsustainable, Bixby said.
The administration has also called the budget trajectory unsustainable and the president has created a fiscal advisory commission to recommend ways lawmakers can get annual deficits down to 3% of GDP by 2015.
That's well below where it would be under the president's budget, according to estimates from both the CBO and the White House. And while his proposals would chip away at deficits in the next few years, they start to climb again thereafter. By 2020, the annual deficit as a percentage of GDP will be 5.6%, according to the CBO. The White House estimates it will be 4.2%.
But there is no guarantee the fiscal commission's recommendations will be adopted by lawmakers.
The CBO notes that its estimates incorporate the Administration's revenue and spending assumptions for policies such as health reform and climate change, because the agency didn't have sufficient details from the White House about those policies to do its own analysis.
Do you think that tax cuts should be extended or continued? Is it more important at the moment to try to help the people of the United States rather then worry about reducing our national debt? Should the congress sign to continue the tax cuts? Will continuing tax cuts contribute to economic growth? Should president Obama reconsider his budge?
I think the tax cuts should be allowed to expire, because America can't afford this much debt. Furthermore, if America really wants to get out of debt, then it should really get out of Iraq and Afghanistan, which have expanded the national debt supremely. I think also that Americans who wish to receive all these benefits from the government should be willing to pay more for them, or we need to tighten our belts and do some fiscal policy trimming. It is very important that the United States be worried about this debt, because China and Japan are buying our debt and hold some political influence because of it. As we have discussed in class, President Obama's proposed tax hike is nothing like it was back before President Reagan took office, and we need to return to the fiscal policy that bases its tax rate on the cost of government programs and expenditures. However, what fiscal policy ten years from now will be like is hard to predict, because under President Clinton the United States had a surplus at the end of his two terms in office.
ReplyDeleteThe question of “is it more important at the moment to try to help the people of the US rather than worry about r reducing our national debt?” is hard to answer because people are being affected with the current economy but at the same time our debt keeps on growing and it will be harder to get back up if we let it grow. I agree with Nick, if we want to cut out on expenses we need to get out of Iraq and Afghanistan, “what are we waiting for?” for our debt to keep on expanding. People in the US have many privileges and some of them simply spend and spend because they know that somehow the government will help them get out of their debts, I think that the people need to go some kind of work or action so they work for the money and not simply wait for it. E.A
ReplyDeleteMaybe there is a way for Obama's administration to do both. In class we learned that monetary policy stimulates the economy which helps people as well as increases GDP. Tax cuts will not help GDP yet people are in need of them which I think is important for government to consider. But what if they do, allowing people to spend more because they have a little extra money this would help GDP. There is a risk to both depending on how people respond Also,I think government could take other measures at reducing national debt such as decreasing government spending. I would advise government to help U.S. citizens as much as possible at this point in time. A
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