Xinhua, WASHINGTON — The budget outlook in the United States is “daunting” and the federal debt will reach about 70 percent of gross domestic product (GDP), the highest level since World War II, according to a report released by the U.S. Congressional Budget Office (CBO) on Wednesday. “Recently, the federal government has been recording budget deficits that are the largest as a share of the economy since 1945, “ said the CBO’s 2011 Long-Term Budget Outlook report. “ Consequently, the amount of federal debt held by the public has surged.”
The CBO said that at the end of 2008, that debt equaled 40 percent of the nation’s annual economic output. Since then, the figure has shot upward.

Xinhua, WASHINGTON — The budget outlook in the United States is “daunting” and the federal debt will reach about 70 percent of gross domestic product (GDP), the highest level since World War II, according to a report released by the U.S. Congressional Budget Office (CBO) on Wednesday.

“Recently, the federal government has been recording budget deficits that are the largest as a share of the economy since 1945, “ said the CBO’s 2011 Long-Term Budget Outlook report. “ Consequently, the amount of federal debt held by the public has surged.”

The CBO said that at the end of 2008, that debt equaled 40 percent of the nation’s annual economic output. Since then, the figure has shot upward.

The sharp rise in debt stems partly from lower tax revenues and higher federal spending related to the recent severe recession. However, the growing debt also reflects an imbalance between spending and revenues that predated the recession, said the report.

The CBO noted that as the economy continues to recover and the policies adopted to counteract the recession phase out, budget deficits will probably decline markedly in the next few years.

“But the budget outlook, for both the coming decade and beyond, is daunting,” said the CBO.

The increasing spending on social welfare in an aging society accounts for bigger and bigger proportion of the federal deficit.

The retirement of the baby-boom generation, people at age around 60, portends a significant and sustained increase in the share of the population receiving benefits from Social Security, Medicare, and Medicaid.

Moreover, per capita spending for health care is likely to continue rising faster than spending per person on other goods and services.

According to CBO’s projections, if current laws remained in place, spending on the major mandatory health care programs alone would grow from less than 6 percent of GDP today to about 9 percent in 2035 and would continue to increase thereafter.

Soaring deficit has triggered hot debate between the two parties. Republicans insist that the White House needs to deeply cut spending, while the Obama administration and Democrats argue that a too deep cut will sacrifice the nascent recovery.

The U.S. public debt surged after the burst of the financial crisis and economic recession. The federal government annual deficit hit 1.41 trillion U.S. dollars in 2009 fiscal year and 1. 29 trillion dollars in 2010 fiscal year.

In a recent report, the U.S. Treasury Department estimated that federal deficit in full fiscal year 2011 will reach 1.65 trillion dollars, the record high level.

Recently, the big fiscal fight in Washington is how to increase the debt limit, the legal ceiling on borrowings which was hit on May 16.

Treasury Secretary Tim Geithner has repeatedly urged Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner to avoid first-ever federal government default on its obligations.

The White House has said the borrowing limit must be raised by Aug. 2 or the government will run out of cash to pay its bills, possibly triggering another financial crisis and recession.

Many analysts say that the debt ceiling issue will be solved by the deadline. However, they argue that it is becoming more dangerous if Washington will not take action as soon as possible.

The CBO suggested that to keep deficits and debt from climbing to unsustainable levels, policymakers will need to increase revenues substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches.

It also urged the government to take earlier action in order to avoid higher cost in the future.

 

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