The Congressional Budget Office, CBO, earns a lot of respect because they are considered non-partisan and as experts, who don’t get too involved in politics. That said, there’s a lot to disagree with their estimates on the budget deficit.
1. The CBO’s budget deficit estimates are consistently wrong. Deficits come in about $200 billion or more worse than CBO estimates year after year. 2. The CBO computes a debt-to-GDP ratio without counting U.S. Treasury debt held in Social Security trust fund accounts. They only look at debt held by the public. The difference is significant. When you count all government debt, the debt-to-GDP ratio is around 135%. Anything greater than 90% is considered dangerous and puts the U.S. in the same league as Greece, Italy and Lebanon. If you count using the CBO method, the ratio is 98%. That’s still dangerously high. The CBO, even taking a “soft” approach on debt, describes the current debt situation as unsustainable. They say that by 2050, federal spending will be 31% of GDP, but federal taxes will be only 19% of GDP. That’s a budget deficit of 12% of GDP (anything over 3% or 4% causes the alarm bells ringing).
The US is looking at multi-trillion-dollar deficits. When debt becomes unsustainable the consequences are either default, restructuring or high inflation. The CBO believes that one of these outcomes are heading our way.
Sven Franssen