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Sunday August 2nd, 2015 4:19AM

New study warns of US long-term debt problems

By Ken Stanford Reporter
WASHINGTON (AP) -- A new government study says that federal health care and retirement programs threaten to overwhelm the federal budget and harm the economy in coming decades unless Washington finds the political will to restrain their inexorable growth. The long-term pressures promise to quickly reverse recent improvements in the deficit.

Tuesday's Congressional Budget Office report says that government spending on health care and Social Security would double relative to the size of the economy in 25 years and that spending on other programs like defense, transportation and education would decline to its smallest level by the same measure since the Great Depression.

The share of federal spending devoted to health care would rise from 4.6 percent of gross domestic product today to 8 percent in 2038; spending on Social Security would rise as well, as the number of people receiving benefits rises to more than 100 million in 25 years, compared with 57 million people taking benefits now.

The rise in costs for the popular benefits programs has been apparent for many years and budget hawks says it's best to tackle their unsustainable growth immediately rather than be forced to make more draconian cuts later. But Washington - whether government is divided or controlled by one party - has been unable to agree on ways to curb the growth of these programs.

Democrats prefer a mix of tax increases and relatively small cuts in Medicare, Social Security and other spending. Republicans have proposed more dramatic long-term cuts to Medicare but are dead set against further taxes, especially after President Barack Obama won rate increases on upper-bracket earners in January.

"The unsustainable nature of the federal government's current tax and spending policies presents lawmakers and the public with difficult choices," CBO said. "To put the federal budget on a sustainable path for the long term, lawmakers would have to make significant changes to tax and spending policies."

Obama inherited an economy in the worst recession since the Depression, which was largely responsible for the spike in the deficit above $1 trillion annually during his first term. The agency estimated in May that the deficit for the soon-to-be-completed 2013 fiscal year would dip to $642 billion.

Most economists measure deficits and debt in relation to the size of the economy. By that measure, the debt would actually decline slightly under the current trajectory over the next five years, dropping from 73 percent of the economy now to 68 percent in 2018. But the ongoing retirement of the Baby Boom generation would contribute to rising debt after that, ultimately bringing the debt to 108 percent of GDP by 2038, with 8 percentage points of that figure caused by the economic drag the debt would have on the economy.

The report is one of a series by the agency and other budget watchdogs warning that spiraling long-term debt threatens to crowd out private investment, raise interest rates and limit Washington's ability to respond to a financial crisis.

The report comes as a divided Congress and Obama need to deal with two important problems: keeping the government funded beyond the Oct. 1 start of the 2014 budget year and permitting the government to borrow more money to pay those bills. Republicans hope to use the must-pass stopgap spending and debt limit legislation to derail "Obamacare" and force further spending curbs.

Rep. Paul Ryan, R-Wis., and chairman of the House Budget Committee, said: "In the weeks ahead, I hope we work together to heed CBO's warning. We must provide relief to the families we serve. We should start by delaying Obamacare and paying down the debt to help grow the economy."
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