Analysts say federal budget could undermine economy

Two of the government's top financial analysts told the Senate Finance Committee Tuesday the federal budget is on an "unsustainable path," and unless major steps are taken to restrain soaring health care costs the budget deficit could drag the U.S. economy to the point of collapse before mid-century.

The heads of the Government Acountability Office and the Congressional Budget Office used the identical term and similar numbers in warning that the projected steep climb in the federal debt and resulting jump in interest payments would impose such a burden on revenues that the government could not pay for other programs and would starve the economy of investment capital.

CBO Director Peter Orszag and acting Comptroller General Gene Dodaro said the government would have to take action to curb the growth of Medicare and Medicaid spending or raise revenues dramatically, or do some combination of the two, to ward off the pending crisis.

Orszag noted the escalating cost of medical care was affecting Americans Tuesday, reducing workers' take-home pay by an average of $10,000 and reducing the government's ability to finance other services.

Dodaro pointed out that the deficit would become more of a problem by 2017 when the surplus in the Social Security account, which is being tapped to pay other federal expenses, runs out.

The government would have to borrow more, spend less or raise taxes, he said. The dire warnings, which repeated similar testimony given earlier this year, were presented at a hearing which none of the 10 Republican committee members attended. But the five Democratic senators present had varying responses to the prediction of budget crisis.

Senate Finance Committee Chairman Max Baucus, D-Mont., noted the projection that by 2050 the federal budget deficit would equal 22 percent of the gross domestic product, compared to less than 3 percent Tuesday, driven mainly by medical care expenses.

"If we control healthcare cost, then along with prudent policies for the rest of the budget, we will be able to control federal budget deficits," Baucus said. "But if we fail to control healthcare cost, it won't matter what else we do."

Orszag said there were reasonable steps to control the growth in healthcare costs, noting that studies have shown that 30 percent of healthcare procedures have no demonstrated effect on quality of care. He and Dodaro urged Congress to develop an organization to determine reasonable healthcare reimbursement rates or set their own standards for care and payment.

Senate Budget Committee Chairman Kent Conrad, D-N.D., pointed out that if all the Bush-era tax cuts are made permanent and the alternative minimum tax is indexed for inflation, "the deficit takes off like a scalded cat." Conrad, a Finance member, also noted that rising Social Security expenses were another problem. Sen. Ken Salazar, D-Colo., said there was "a disconnect between what we're hearing today and what the American public believes," because the administration argues that "deficits don't matter." Sen. John (Jay) Rockefeller, D-W.Va., said he was not willing "to see Medicare and Medicaid cut to the disadvantage of my people."