Fresh Fodder Delivered For Year-End Brawl Over Bush-Era Legislation

By David Lawder
WASHINGTON, June 5 (Reuters) - U.S. public debt would balloon to twice the size of its economy in 25 years if current tax and spending policies are extended, Congress' budget referee said on Tuesday, delivering fresh fodder for a year-end budget brawl.
The Congressional Budget Office said in a new report that if tax cuts enacted under George W. Bush are allowed to expire as scheduled on Dec. 31, along with some other tax and spending policies, U.S. public debt would shrink significantly, falling to 53 percent of gross docmestic product by 2037 from 73 percent this year.
By comparison, Greece, debilitated by a crushing debt crisis that may force it to leave the euro, is forecast to have a debt load topping 160 percent of its GDP this year.
The long-term CBO forecasts will help bolster election-year arguments from both Democrats and Republicans in favor of their party's form of U.S. deficit reduction as the year-end deadline for the tax cuts, automatic spending cuts, and other fiscal decisions draw near.
President Barack Obama's Democrats have argued that leaving the Bush tax cuts in place, as Republicans have proposed, is fiscally irresponsible, and new revenues are needed by restoring higher tax rates on the wealthy.
Republicans, including presidential candidate Mitt Romney, argue that tax rates can be lowered if Congress makes significant cuts in entitlement programs such as the Medicare and Medicaid health care programs for the elderly and poor.
The CBO report finds, as it has in past years, that the biggest source of growth in federal spending will come from those health care programs. By 2037, if no health care changes are enacted, federal health care spending would double to around 10 percent of gross domestic product compared to around 5 percent in 2010, it said.
"The aging of the U.S. population and the rising costs for health care mean that the combination of budget policies that worked in the past cannot be maintained in the future," the CBO said in the report.
But sticking to its non-partisan mission, the CBO steered clear of favoring one party's solutions over the other's.
"To keep deficits and debt from climbing to unsustainable levels, as they will if the current set of policies is continued, policymakers will need to increase revenues substantially above historical levels as a percentage of GDP, decrease spending singificantly from projected levels, or adopt some combination of those two," CBO said.
U.S. growth over the long term also would take a huge hit if the debt were to rise to crushing levels, CBO said. If current tax and spending policies were left in place, pushing debt drastically higher, U.S. economic growth would be 4 percent lower by 2027 and 13 percent lower by 2037, it said.

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