The non-partisan Congressional Budget Office (CBO) warns this week that U.S. debt will hit 141 percent of GDP in the next 30 years as America taxes itself into poverty.
With a new University of Chicago poll revealing that Democrat Hillary Clinton’s lead over Republican Donald Trump in the key 18-to-30-year-old demographic is only 38 percent to 17 percent, with 45 percent undecided, Clinton was forced to adopt Bernie Sanders’s free-spending agenda of 1) free in-state public college tuition for families making up to $125,000 a year; 2) gradually raising the minimum wage to $15 an hour, and 3) beginning “Medicare for all” by allowing 55-and-older residents to buy Medicare coverage.
The CBO has warned in the past that irresponsible federal spending has deteriorated the long-term fiscal solvency of the United States, but the latest CBO report predicts that the net federal debt’s share of the overall economy will steadily rise from “75 percent of GDP in the wake of the financial crisis, to 86 percent in 2026 and 141 percent in 2046.” CBO goes on to point out that such a radio would far exceed the historic peak of 106 percent of GDP at the end of World War II.
The debt outlook has worsened, “mostly a result of changes in tax laws and interactions between tax law and economic conditions,” since CBO’s forecast last year that the net federal debt would only reach 126 percent debt-to-GDP by 2040.
The CBO projects federal tax revenues as a share of GDP will be flat over the coming decade, fluctuating between 18.0 percent and 18.2 percent. But under current law, as inflation pushes all income into higher marginal tax brackets, all U.S. income levels will pay a higher percentage of their income in taxes after 2026 than similar taxpayers do now.
With future federal tax revenues as a share of GDP reaching 19.4 percent, the CBO estimates that “higher marginal tax rates on both labor and capital would dampen economic activity, reducing overall tax revenue from what it would be otherwise.”
Due to the tax drag, the “real” (after-inflation) Gross National Product (GNP) per person in the U.S. will slow to an average gain of 1.3 percent annually over the next 30 years, versus an average of 1.9 percent over the past 50 years.
Many economists have tried to blame slower growth on an aging population. But the CBO projects that U.S. population will grow from 328 million in 2016 to 400 million in 2046, a rate that is only slightly below that of the last 50 years. The U.S. population’s age distribution will also only shift modestly compared to the rest of the developed nations, with the age-65-or-older population rising from 15 percent today to 21 percent in 2046.
Mounting debt, according to the CBO, will “hurt the economy and constrain future budget policy”:
- Reducing national saving and income;
- Increasing government’s interest costs;
- Putting more pressure on the rest of the budget;
- Limiting ability to respond to unforeseen events, such as natural disasters and war; and
- Increasing the likelihood of a financial crisis.
Given that the self-serving federal bureaucracy usually advocates for an increase federal tax rates, a warning from the respected CBO that high tax rates are about to impoverish America will have a significant influence on future public policy debates.