Deficit to hit new high in FY2011, says CBO
posted at 1:36 pm on January 26, 2011 by Ed Morrissey
Let’s look on the bright side: it’s another first for the Obama administration! Better yet, it’s the last accomplishment of the Democratic Congress, which proved so inept on budgeting that they couldn’t actually pass the FY2011 plan with large majorities in both chambers and a friendly President in the White House. The Washington Post reports that the CBO blames this in part on the “tax cuts” in the lame-duck agreement, but somehow glosses over the spending increases over the last four years:
The weak economy and fresh tax cuts approved last month will help drive the federal budget deficit to nearly $1.5 trillion this year, the biggest budget gap in history and one of the largest as a share of the economy since World War II, congressional budget analysts said Wednesday.
“Economic developments, and the government’s responses to them, have – of course – had a big impact on the budget,” the Congressional Budget Office said in its semi-annual budget outlook.
This year’s deficit would be the highest on record and would equal about 9.8 percent of the economy, the CBO said, slightly smaller than the 2009 budget gap, which at $1.4 trillion amounted to nearly 10 percent of the gross domestic product. However, at a time when policymakers had hoped to begin closing the gap between spending and revenue, the CBO forecast that it is widening again and is on track to remain well above $1 trillion in 2012, the fourth year in a row.
As a result, the report said, “debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011.”
There were tax cuts in the compromise bargained between Barack Obama and the “hostage takers” in the GOP, but not on income-tax rates. Those remained the same as they had been for the past seven years. The actual tax cuts, which consist of a 2% tax holiday for workers on FICA and a $150 billion tax credit that allows businesses to write off 100% of capital investment in 2011, were championed by the White House. Republicans supported the latter and were lukewarm at best on the former.
However, tax “cuts” and the economy aren’t the problem. The problem is a federal budget that has almost doubled in a decade, and increased 38% on an annual basis over the last four years. Some of that came in discretionary spending, including defense and homeland security, but some of it came in increased mandatory spending, thanks to unsustainable entitlement structures. Federal revenue has been fairly constant over the last decade, only tailing off a couple of hundred billion dollars during the Great Recession and its aftermath. That falls far short of an explanation for a deficit which dwarfs that shortfall.
Democrats still haven’t figured out the math. Rep. Chris Van Hollen (D-MD) told the Post that Congress needs a bipartisan approach on deficit control, but one that doesn’t “blindly slash investments in important priorities.” The deficit has now grown to 39% of the entire federal budget — how exactly does Van Hollen propose deficit reduction without slashing spending? Note too the language of “investments” in “important priorities.” Even if one accepts government spending as “investments,” no one can invest in anything when they don’t have the cash. And the US ran out of cash a long time ago, which is why we keep borrowing to cover the deficit spending.
The math is clear. In order to eliminate deficit spending, Congress has to cut 39% of its current budget. Anything that falls short won’t solve the problem but perpetuate it, and that means that “priorities” need to be recalculated now.