CBO's Grim Diagnosis: Enemy Is Us

Debt: In the long debate over financial reform, proponents repeatedly argued that an overhaul was needed to "prevent the next financial crisis." Who'd have thought the real threat for another crisis was government itself?

That stunning assessment comes not from a think tank or political group, but the government itself. The nonpartisan Congressional Budget Office, whose job it is to make reasonable projections about the economy and budget, now says it's not the financial sector that's putting us at serious risk - it's government's almost insatiable desire to spend ever larger sums of money.

In a new report this week, the CBO grimly summarizes America's fiscal future: "Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable levels."

"Unsupportable." Let that sink in for a minute. It means we'll have no way to pay what we owe - that we as a nation will be bankrupt. Lenders won't lend to the government unless it pays exorbitant interest rates. Capital that usually goes to create new businesses and jobs will be gobbled instead by the government to pay off its debts.

Just as bad, however, is that somewhere along the way we might have the mother of all financial meltdowns, a crisis that will make the most recent one look picayune.

As the CBO put it, "a growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates."

No doubt about it: We are in deep, deep trouble - trouble that makes Greece's woes pale by comparison.

As we've noted before, the long-term fiscal deficit built into federal entitlement spending is now $107 trillion dollars (and, no, that "t" isn't a typo). This deficit is due entirely to runaway spending.

Today, public debt as a share of GDP stands at 62%. But by 2030, it will double to 146%, CBO data show - well above the 90% level at which economists say the economy begins to slow appreciably.

Just to keep our debt-to-GDP ratio at 60% would require "an immediate, permanent cut in spending or increase in revenues equal to about ... 5% of GDP," according to the CBO. That might not sound like a lot, but it's equal to 20% of all U.S. spending.

It's no secret that Democrats in Congress desperately wish to raise America's taxes to European levels and beyond. Their vision is a cradle-to-grave welfare state - much like those that have failed in Germany, France, Italy, Greece, Spain and Britain.

They've put off dealing with the entitlements crisis because the longer they wait, the easier it will be to push through enormous tax hikes to deal with the crisis and permanently cement the New Deal welfare state into place.

Remember how they went after President Bush's modest plan to create private investment accounts for Social Security - a plan that over the long run would have eased the program's financial burden?

They opposed it because it gave Americans some control over their own money. And if nothing else, Democrats are heavily invested in control of the U.S. economy - so much so that, despite the manifest failure of their trillions in bailouts, stimulus and industry takeovers, they keep trying to spend more.

But tax hikes are dangerous. As the CBO notes, higher taxes to pay down the deficits and shrink the mountain of debt "would discourage work and saving, further reducing output and incomes."

Despite this warning, Washington is already working on a "deal" to mitigate the coming debt crisis by hiking taxes sharply.

Erskine Bowles, former Clinton White House aide and a member of President Obama's "bipartisan" Deficit-Cutting Commission, has proposed a 75% to 25% split to cut our future deficits - with 75% going to spending cuts, and 25% going to tax hikes. That formula has gotten some bipartisan support.

And it sounds reasonable. Until you do the math, and realize that even a 75-25 split means a $26.8 trillion tax hike over the long run.

The time to say "no" to new taxes that will further shrink your paycheck and lower your standard of living is now. Government should reduce future deficits and debt. But it should do so by tightening its belt, as every family in America has to do when times get tough. We'll all be better off for it.