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America’s Looming Fiscal Crisis

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Good morning, friends, and welcome to Wednesday!

The Congressional Budget Office (CBO) recently released a report that projects the budget and economic outlook for the next ten years, and the news isn’t good.

  • This year’s budget deficit will reach $590 billion – a 35 percent increase from last year.
  • The national debt will hit unprecedented levels next year, topping $20 trillion.
  • By 2026, CBO projects the national debt will reach over $28 trillion, or 86 percent of gross domestic product (GDP). “At that level,” CBO advises, “debt held by the public, measured as a percentage of GDP, would be more than twice the average over the past five decades.”

CBO cautions that the rising levels of public debt would pose “serious negative consequences.” Federal outlays for interest payments will crowd out important discretionary spending, including investments in education. Higher levels of debt will drive productivity and wages lower. CBO warns, “The likelihood of a fiscal crisis in the United States would increase.”

Furthermore, Ryan Ellis, senior advisor for tax policy at the Conservative Reform Network, reviews the CBO report and notes that taxes will “rise quickly…to historically high levels.” Ellis cautions, “After [2016], taxes rise even faster than economic growth, eventually hitting 18.5% of the economy, about a full percentage point higher than the historical average.”

Yikes.

So what can we do?

James Capretta offers a way forward in The Fiscal Policy Context for a Conservative Reform Agenda, his book in CRN’s Room To Grow series. He offers sobering details and forewarns of a debilitating crisis should policymakers decline to get the federal government’s fiscal house in order.

It’s not enough, Capretta argues, to simply nibble around the edges of smaller programs and agencies, to “chase after short-term goals,” or to “focus exclusively on budget numbers.”

Instead, conservatives should pursue a holistic approach that addresses defense spending, non-defense discretionary spending, Social Security and health care programs, as well as tax policy. Should we fail to make rational, gradual reforms today, Capretta contends, we will face drastic, severe changes that could lead to punishing tax hikes and draconian austerity.

To avoid this fiscal crisis, policymakers must act. For a conservative reform approach, download Capretta’s book for free here.

Also, if you see Ryan Ellis today, wish him a happy birthday.