Congress is working toward a new budget agreement after a battle between Tea Party-allied Republicans and the Obama administration over limiting debt led to partial suspension of federal operations earlier this month.
The agreement reached after the 16-day government shutdown set a Dec. 13 deadline for budget negotiations.
The mandatory cuts don’t touch benefit payments for programs such as Social Security, Medicare and Medicaid. Many Republicans want to replace the automatic cuts with reductions in spending on these entitlement programs that account for most of the nation’s long-term debt. Democrats including Obama have indicated they’re open to some of these ideas as long as they are paired with new tax revenue, which Republicans oppose.
“Congress must build on this progress by crafting a pro-jobs and pro-growth budget agreement that strengthens the economy while maintaining fiscal discipline,” Treasury Secretary Jacob J. Lew said in a statement today.
The Treasury said the 2013 deficit amounted to 4.1 percent of GDP. The shortfall was forecast to be 3.9 percent of GDP this year, according to Congressional Budget Office projections last month, down from 10.1 percent in 2009.
A short-term shrinkage of annual budget deficits isn’t enough to reverse the 25-year growth of U.S. debt that requires Congress to choose among spending cuts, tax increases or a combination of both.
The CBO estimates rising spending on Medicare and Social Security will widen the deficit to 6.5 percent of GDP in 2038, greater than any year between 1947 and 2008.
Economists including former Federal Reserve Vice Chairman Alan Blinder say the change in the entitlements system is necessary.
“Unless that happens, the budget deficit as a share of GDP and therefore the national debt as a share of GDP is headed off for the wild blue yonder,” Blinder said in an Oct. 17 Bloomberg Radio interview. “And that is what we need to stop.”
To contact the reporter on this story: Kasia Klimasinska in Washington at email@example.com