The Congressional Budget Office has just released an update to its February 2013 Budget Projections. The deficit for 2013 is now projected to be $642 billion, down from the previous $845 billion. This is good news but its main effect will only be to delay by several months until fall serious negotiations about raising the debt limit again. The long term outlook has changed very little. New debt for 2014-2023 is now projected at $6.3 trillion. The total debt this year will be 76% of GDP and in 2023 it is projected to be at 74% of GDP and rising. Over the past 40 years total debt has averaged 39% of GDP.
Such a large debt level now and for the indefinite future obviously has very serious negative consequences. As soon as interest rates return to more typical higher levels, interest payments will rise by hundreds of billions of dollars per year, crowding out much other spending. We can be sure that a new crisis will occur sooner or later leaving national leaders at that time in a precarious position, unless the debt level shrinks significantly in the meantime.
This means that significant additional deficit reduction is still needed at the present time. Realistically, it should come from reforming entitlement spending which is becoming an even bigger driver of our continuing debt explosion. Any national leader who denies the seriousness and urgency of our current frightful fiscal condition should be considered irresponsible and held to account for this failing.
The presently high unemployment rate of 7.5% is no excuse for inaction. The way to boost the economy, and thereby reduce unemployment, is to encourage more business investment with tax and regulatory reform. Economic stimulation and deficit reduction are not in opposition to each other. They can and should be addressed together at the same time.