CBO Director Phillip Swagel told the Senate Budget Committee on Sept. 23 that the long-term outlook for the economy “is daunting, but at the same time, the United States is not facing an immediate fiscal crisis” because interest rates remain at historic lows.
He said the low rates minimize the government’s borrowing costs to fund its deficit spending, and CBO expects the rates to remain low “for several years as the economy recovers from the effects of the [CCP virus] pandemic.”
The problem, according to Swagel, is that interest rates will inevitably go higher, and possibly “abruptly higher,” with serious economic consequences.
“Federal debt is high, and it is projected to rise substantially, and over the long run, actions are needed to address the nation’s fiscal challenges,” Swagel said at the hearing.
“The federal debt held by the public is projected to increase to 98 percent of the gross domestic product (GDP) at the end of this year. That’s up from 79 percent last year and from only 35 percent in 2007, before the start of the previous recession.
“The debt is projected to continue to rise, reaching 195 percent of GDP by 2050, and that far exceeds the previous high of 106 percent just after the end of World War II.
“The challenge is continuous deficits drive up the costs of servicing the debt. ... The challenge of the fiscal outlook over the coming decade is that the current path is unsustainable.”
Budget panel Chairman Sen. Mike Enzi (R-Wyo.) told the hearing that “CBO’s updated budget projections confirmed what we all knew, that the economic disruption caused by COVID-19 and the federal government’s response have led to a surge in deficits and debt.”
Enzi echoed Swagel’s warnings about growing deficits mean higher borrowing costs for the government, lower output in the economy, and more risk of a severe economic crisis. The Wyoming Republican, who isn't seeking reelection, noted that interest payments on the national debt alone will be the biggest single expenditure in the federal budget by 2050.
“Deficit spending and the national debt were unsustainable before the pandemic,” Enzi said. “We must address these challenges before they become the next crisis or prevent future policymakers from dealing with new unforeseen emergencies.
“We cannot continue running trillion-dollar annual deficits forever. The longer we wait, the more severe the changes and challenges will be, and the fewer options we will have.”
Swagel told Sen. Charles Grassley (R-Iowa) that he agreed President Donald Trump’s delay of payroll taxes will have no effect on Social Security, contrary to claims of many Democrats.
Sen. Mike Braun (R-Ind.) asked Swagel if the status of the U.S. dollar as the world’s reserve currency is a factor in keeping borrowing costs low. The CBO chief agreed, calling it “an extraordinary privilege.”
None of the panel’s 10 Democrats participated in the hearing. Sen. Kamala Harris (D-Calif.), the Democratic vice presidential candidate, was on the campaign trail.
On the other side of the Capitol, however, House Democrats were highly visible on budget issues on Sept. 23, proposing to restore earmarks, the special-interest spending provisions that often benefit campaign donors, former staff aides, or relatives of individual senators and representatives.
Earmarks typically aren’t officially linked to the benefiting congressman and are often buried in huge appropriations bills or concurrent spending resolutions where they go unnoticed, despite collectively costing multiple billions of tax dollars.
Rep. Rosa DeLauro (D-Conn.), who also is campaigning for the appropriations panel chairmanship, hasn't explicitly committed to restoring earmarks, saying it is “premature” to do it now.
Wasserman-Schultz reportedly told colleagues earlier this week: “Members best understand the needs of our communities. The earmark ban ceded the power of the purse to unelected bureaucrats who are currently beholden to an erratic, lawless president.”
Lowey seemed poised in January to reinstitute earmarks on a limited basis, but backed off despite encouragement from House Majority Leader Steny Hoyer, the Maryland Democrat who spent 24 years on the appropriations panel and was an active earmarker.
Spokesmen for Wasserman-Schultz, Kaptur, and DeLauro didn't immediately respond to emails from The Epoch Times requesting comment.