As European politicians fight to contain the debt crisis, the United States could see a similar situation within the next decade, Josh Bolten, former Office of Management & Budget [OMB] director told CNBC on Friday.
“What’s going in Europe is a preview of what the United States could be if we don’t get our own fiscal house in order relatively soon,” he said. “We need to get a hold of it very soon before the credit markets start to come after the United States’ credit rating.”
Bolten said that during the George W. Bush years, when Bolten was OMB director from 2003-2006, the OMB often testified against “unsustainable” federal spending.
Although the Obama administration has a higher proportion of its budget allocated towards taxation, said Bolten, spending has dwarfed what gains have been made in tax revenue.
“If you look at even what President Obama’s proposals are, they don’t take the tax level in the United States far outside of its historic range of 18 percent of GDP,” Bolten added. “The spending numbers in that going forward run up to 23, 24, 27, 28, eventually, percent of GDP. There’s no way that tax revenue can chase that kind of spending.”
U.S. debt is expected to hit $8.8 trillion by the year's end, according to the Congressional Budget Office. As a result, the government’s interest payments are expected to triple over the next decade, from $207 billion to $723 billion.
Although some stimulus is necessary to boost a sluggish economy, said Bolten, it could become problematic if policymakers view spending as a long-term solution.
“So far politicians have not stepped up and responded,” Bolten, a former executive at Goldman Sachs , went on to say. “What happened in the health bill was a pretty good indicator that our political leaders are not prepared to tackle the long-term funding problems that we have in our entitlement programs."
Although the United States won’t need to implement Greece-style austerity measures, Bolten added that the federal government should curb growth of entitlement programs.
“Now we’re not Greece,” he said. “We don’t actually need to cut people’s benefits 10 percent today or anything like that. I'm personally an optimist because these are problems that are solvable because we don’t need to inflict immediate pain on people who are receiving benefits.”
