WASHINGTON — As the White House and Congress career toward another fiscal showdown, the nonpartisan Congressional Budget Office warned Tuesday that President Obama and lawmakers have been cutting the wrong kind of federal spending as they try to avoid unsustainable levels of debt in coming decades.
In its annual long-term outlook, the budget office projected that because of government spending cuts and rising tax revenues from the recovering economy, annual deficits will fall in the short term — to a projected 2.1 percent of the economy’s output by the 2015 fiscal year, or about one-fifth of the peak shortfall at the height of the recession in 2009.
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But starting in 2016, the office projected, deficits will rise again as more baby boomers begin drawing from Medicare, Social Security, and Medicaid’s long-term care benefits.
By 2023, the annual deficit would rise to an estimated 3.5 percent of the gross domestic product, which is just beyond the level that many economists consider sustainable in a growing economy. By 2038, it would be 6.5 percent.
The accumulated federal debt held by the public, which had averaged 38 percent of the GDP for the 40 years preceding the financial crisis that began five years ago this week, would reach 100 percent of the GDP in 2038. But that probably understates the potential crisis, the budget office said, because it does not account for “the harmful effects that growing debt would have on the economy.”
Budget specialists have been warning since at least the Reagan era that an aging population in the early 21st century would drive spending for entitlement programs — chiefly Medicare and Medicaid and to a lesser degree Social Security — to levels that would crowd out military and domestic spending. Interest on the debt would also be a major and growing expense.
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What is different now is that the Republican-controlled House and the White House have been on a two-year budget-cutting run that has resulted in reductions in areas that are not driving the projections of future debt. Those discretionary spending programs include programs as varied as weapons buying, air traffic control, science and research, education, and national parks.
Discretionary spending had already been in line, since 2011, for annual cuts over nine years. But the across-the-board reductions that took effect in March, when Republicans and Obama could not agree on alternative measures, has pared the domestic and military programs further, resulting in more layoffs, furloughs, and cutbacks.