Federal taxes will go up, but spending will rise even faster over the next 25 years, leaving the national government in dire fiscal straits, according to projections the Congressional Budget Office released Tuesday.
In one key finding, the CBO figures show that in order to keep Social Security solvent without cutting projected benefits, the government would have to impose an immediate and permanent 3.4 percent payroll tax increase.
Overall, as the population ages, the government will bleed red ink, with spending — which is about 21 percent of gross domestic product right now — reaching 26.2 percent of GDP by 2038.
The figures ignited yet another round of hand-wringing in Washington, where Democrats said it signaled the need for tax increases and Republicans said the numbers cry out for more spending restraints.
CBO Director Douglas Elmendorf said spending on basic government — defense, schools, criminal justice and other programs — is slated to drop to its lowest level since the Great Depression, when measured against the size of the economy.
Instead, he said the pressure is coming from Social Security, Medicare and Medicaid — the big entitlement programs enacted to help the elderly and the poor — which will become more expensive as people retire and health care costs rise.
“So we as a society have a fundamental choice of whether to cut back on those programs or to raise taxes to pay for them. And so far, we’ve chosen to do very little of either, and as long as that’s the case, I think CBO’s projections will keep looking like this,” Mr. Elmendorf warned.
In the short term, the picture is somewhat better. Deficits will bottom out at $378 billion in 2015, as long as Congress and President Obama leave this year’s spending cuts and tax increases in place. But they will begin to rise again after that.
Much of the grim picture is the result of the tax deal Mr. Obama and Congress struck at the beginning of this year, which let payroll tax rates rise across the board and saw income-tax rates go up for the wealthiest, but permanently lowered the income-tax rates on most Americans.
That changed projections dramatically, the CBO said: Debt, which just last year had been projected to drop to 52 percent of gross domestic product over 25 years, will now be 100 percent of GDP in 2038.
The report comes as Congress and the White House are debating the 2014 spending bills, which are due at the end of this month. Then the federal government will bump up against its borrowing limit next month.
Mr. Obama says that he will not negotiate with Congress on the debt limit, and that he will veto any effort to defund his health care law as part of the yearly spending debate.
Republicans say it’s up to the president to get involved in the deficit conversation.
“Republicans have demonstrated leadership in tackling this problem, passing a budget that balances over 10 years,” said House Speaker John A. Boehner, Ohio Republican. “The president and his party should be honest with the American people about the fiscal challenges we face and demonstrate the courage necessary to work in a bipartisan way to solve our spending problem.”
For their part, Democrats said they want to roll back some of the spending cuts that have helped improve the fiscal picture. They have proposed to replace the “sequester” cuts with deeper defense and agriculture cuts, to stop tax subsidies for oil companies, and to impose other tax increases, and they blame Republicans for refusing to allow taxes to rise.
“They have refused to offer a plan to replace the sequester this year, and have denied a vote on the House Democratic plan seven times,” said Rep. Chris Van Hollen of Maryland, ranking Democrat on the House Budget Committee.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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