Green Room

The key phrase in the CBO’s newest budget report

posted at 12:17 pm on August 22, 2012 by

In and around all of the language in the CBO’s newest report on the budget, released today, is this important closing to its summary (emphasis added):

Under the alternative fiscal scenario, deficits over the 2014–2022 period would be much higher than those projected in CBO’s baseline, averaging about 5 percent of GDP rather than 1 percent. Revenues would remain below 19 percent of GDP throughout that period, and outlays would rise to more than 24 percent. Debt held by the public would climb to 90 percent of GDP by 2022—higher than at any time since shortly after World War II.

Real GDP would be higher in the first few years of the projection period than in CBO’s baseline economic forecast, and the unemployment rate would be lower. However, the persistence of large budget deficits and rapidly escalating federal debt would hinder national saving and investment, thus reducing GDP and income relative to the levels that would occur with smaller deficits. In the later part of the projection period, the economy would grow more slowly than in CBO’s baseline, and interest rates would be higher. Ultimately, the policies assumed in the alternative fiscal scenario would lead to a level of federal debt that would be unsustainable from both a budgetary and an economic perspective.

Now, liberals will argue that CBO’s baseline scenario shows a very different fiscal situation. This is true. What is also true, however, is that the baseline scenario looks at current law, meaning what is supposed to happen as of this moment. This means the CBO’s baseline scenario assumes major tax hikes via the Alternative Minimum Tax, elimination of the Bush tax policies and elimination of the payroll tax holiday. Does anyone really think this is realistic? Additionally, the baseline scenario assumes the Budget Control Act’s “cuts” go into place and that the “Doc Fix” cuts begin taking effect. Considering that Congress has delayed the Doc Fix cuts for nearly a decade, and the Budget Control Act is hated by both parties, is this realistic? Personally, I think not. And, actually, the CBO report agrees with me, with the exception of the payroll tax holiday.

One other key point in this closing: even if the tax portion of the fiscal cliff doesn’t arrive, meaning current policies are extended, tax revenues will “remain below 19 percent of GDP” for the next 10 years. This is roughly consistent with the tax averages for the last several decades. Meanwhile, spending will be several percentage points of GDP higher than the average over the last several decades. What does this mean? It means conservatives are right, and liberals are wrong — we don’t have a tax problem. We have a spending problem.

Oh, and CBO also admits conservatives are right about the forthcoming effects of a massive national debt. Perhaps Obama and Romney could take notice and actually put forth plans that would balance the budget in the next four or so years? Maybe?

 

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The bottom line is, this is not rocket science. It’s math. Basic math. The politicians are trying to get 1+1 to equal 3 and they are trying to ignore the big red “X” the teacher put over the problem, marking it wrong.

hopeful on August 22, 2012 at 12:37 PM

Funny thing about taxation. Liberals can hike the daylights out of taxes and you get… just under 19% of GDP on an economy growing at a rate between 1.8% and 2.6%.

Conservatives understand this, so that’s why you CUT expenditures and reduce taxation. Know what you get in revenue? That’s right, you guessed it! Just under 19% of GDP on an economy growing at a rate of 5.0% or better.

No tough decision here.

Turtle317 on August 22, 2012 at 4:33 PM

These sorts of assumptions can and should be made of the Paul Ryan plan as well. Laws are only valid for the period they are enacted. No budget this year ties the hands of the congress next year, or even next week. Let alone 40 years in the future when almost all those who enacted the legislation are already dead or close to dead.

Paul Ryan, enabler of the welfare state. Romney, creator of welfare state.

astonerii on August 22, 2012 at 4:49 PM

The politicians are trying to get 1+1 to equal 3 and they are trying to ignore the big red “X” the teacher put over the problem, marking it wrong.

hopeful on August 22, 2012 at 12:37 PM

The teacher stopped using the red X because she thought it might hurt their self-esteem, and instead gave half-credit for trying.

malclave on August 22, 2012 at 7:36 PM

The teacher stopped using the red X because she thought it might hurt their self-esteem, and instead gave half-credit for trying.

malclave on August 22, 2012 at 7:36 PM

LOL
Old math: 1+1=
New math: 1+1=2. How does that make you feel?

hopeful on August 22, 2012 at 9:26 PM


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