A bipartisan group of senators met behind closed doors Tuesday and emerged proclaiming new urgency about the country’s fiscal picture in the face of the European debt crisis.
The several dozen senators met with Robert B. Zoellick, outgoing president of the World Bank, who warned the lawmakers to be ready to put aside partisan differences.
“There’s a real sense that Europe’s economy is in a deep crisis, and if it slides further it will drag down the United States even more,” retiring Sen. Joe Lieberman, an independent from Connecticut, said after the meeting. “Everyone seems to know that. The question is whether we’ll have the guts to do anything about it.”
In its analysis of the long-term budget, the CBO ran two sets of numbers.
The first set assumed the 2001 and 2003 tax cuts expire at the end of this year, the alternative minimum tax hits more families, the automatic spending cuts agreed to last year take effect and Congress allows deep cuts to payments to doctors who treat Medicare patients. Under those assumptions, debt drops.
But under the second set of assumptions Congress delays all of those tax increases and spending cuts, and debt explodes. That would also have a decidedly negative impact on the economy — at least 4.4 percent lower than it would otherwise be in 2027, and 13.4 percent lower in 2037.
The CBO’s analysis gives some interesting snapshots about how both the budget and the economy will change.
Among the CBO’s assumptions is that the U.S. population will reach 389 million in 2037 and top 500 million in 2087, with the population skewing ever older.
Older workers tend to work fewer hours, meaning that by 2087 the average number of hours worked per employee in the workforce will be about 2 percent less than in 2022.
The CBO also predicted that the growth in the labor force will slow, keeping economic growth to an average of 2.2 percent over the long term. But the interest rate on debt will be higher, at an average of 2.7 percent — a reversal from recent years, when economic growth and interest rates were about the same.
The agency also put an exact price on the deficit when it comes to savings. The CBO said that for each dollar the deficit rises, national savings is reduced by between 32 cents and 72 cents, and domestic investment is reduced by between 10 cents and 50 cents.
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