National Debt Hits Highest Level Since World War II

The national debt will make up 62 percent of the U.S. economy by the end of the year, the highest percentage since the end of World War II, according to a report released Wednesday by the non-partisan Congressional Budget Office.

CBO Director Douglas Elmendorf broke down the numbers in a blog post, explaining that the dramatic jump in debt stems partly from lower tax revenues and increased federal spending "related to the recent severe recession and turmoil in financial markets."

One of the biggest challenges to keeping a manageable debt level remains soaring health care costs, specifically those related to Medicare, according to Elmendorf.

"CBO projects that if current laws do not change, federal spending on major mandatory health care programs will grow from roughly 5 percent of GDP today to about 10 percent in 2035 and will continue to increase thereafter," he wrote.

Elmendorf outlined what he considered to be the most significant "negative impacts" that an out of control national debt would have on the overall economy:

• Large budget deficits would reduce national savings, leading to higher interest rates, more borrowing from abroad, and less domestic investment -- which in turn would lower income growth in the United States.
• Growing debt would also reduce lawmakers' ability to respond to economic downturns and other challenges.
• Over time, higher debt would increase the probability of a fiscal crisis in which investors would lose confidence in the government's ability to manage its budget, and the government would be forced to pay much more to borrow money.

The budget office report came as the White House fiscal commission met again Wednesday to figure out ways to reduce deficits and the debt.