WASHINGTON — — Amid election year barbs over taxes and spending comes a jolt: A new report says that a U.S. debt crisis could hit soon and imperil the economy if Washington fails to staunch the red ink.
The nation's publicly held debt will climb to dangerously high levels — more than 70% of the gross domestic product — by the end of the fiscal year, Sept. 30, the nonpartisan Congressional Budget Office said Tuesday. That's a level not seen since World War II.
Lower tax revenue and increased federal spending — some the result of the recent recession, some accumulated before President Obama took office — have led to record-high annual federal deficits and soaring debt.
The bleak fiscal outlook throws into stark terms the politically difficult choices facing lawmakers and the next president: Allowing the debt level to continue unchecked would lower the nation's economic output and increase the possibility of a fiscal crisis in the years to come, the budget office warned.
But taking sudden action to ease the debt load — by imposing new taxes or making deep cuts in federal spending or both — could slam the brakes on economic growth, pitching the nation into a recession in the first half 2013. Even if the economy expanded in the second half, the growth for the year would probably average just 0.5%.
The report touched off a new round of finger-pointing in Washington and on the presidential campaign trail, as well as plaintive calls for bipartisanship.
Mitt Romney, the Republican presidential front-runner, laid blame at the White House. The report "confirms that President Obama has placed us on a path to fiscal ruin," said Lanhee Chen, the Romney campaign's policy director.
"This is a president who promised to cut the deficit in half but proceeded to run four consecutive trillion-dollar deficits and accumulate nearly as much publicly held debt as all prior presidents combined," Chen said.
Total debt, of which publicly held debt is a major part, has increased about 50% since Obama took office, according to the Treasury Department's Bureau of Public Debt.
White House spokesman Jay Carney said the president wants a balanced approach to resolving the fiscal problems, one that consists of new revenues and spending cuts. He blamed Republicans for resisting new taxes.
"This is arithmetic, not calculus," Carney said. "There is either an option that says dealing with our deficits and debt should — the responsibility for that — should be borne entirely, almost, by the middle class and seniors and folks who depend on programs like Medicaid, or it should be borne evenly, in a balanced way, which is what the president believes."
Yet with the outcome of the November election expected to hinge in part on the approach the two parties take toward economic policy and job creation, the two sides appeared no closer to bridging the political divide.
The nation's debt load has historically hovered at 38% of GDP, the nation's total output of goods and services, but inched up to 40% at the end of 2008 before Obama took office.
The public portion of the debt load is expected to rise to 73% of GDP by Sept. 30 and, if the George W. Bush tax cuts and other policies remain in place, soar to 200% in 2037, according to the report.
The public debt does not include transfers among federal accounts and is lower than the nation's total $15.4-trillion debt load, which is already about equal to the nation's GDP.
Congress and the White House have tried, and failed, several times over the last year to strike a so-called grand bargain that would cut spending, raise new tax revenue and put the nation on a better financial course.
Now, Washington faces what's being called a year-end fiscal cliff: a confluence of policy deadlines that could force a deal.
At that time, lower tax rates put in place under the Bush administration are set to expire and $1.2 trillion in spending cuts, which Congress agreed to last year, are set to kick in.
If Washington does nothing, the debt curve would begin to bend down, to 53% by 2037, a level that economists consider to be much safer. But the economy would slow sharply and perhaps contract.
Perhaps even more pressing for Washington is the potential political price of keeping those policies in place. Lawmakers from both parties are trying to undo them amid a heated debate in Congress and on the presidential campaign trail.
Obama and his Democratic allies on Capitol Hill are pushing to raise tax rates for those earning above $1 million a year, refusing more budget cuts unless Republicans agree to new revenues.
Republicans, including Romney, want to keep tax rates low, hewing to a no-taxes pledge many lawmakers have made, but cut domestic programs and spare the Pentagon.