Deficits As Far As the Eye Can See

Not only is the Congressional Budget Office predicting deficits at historic levels over the next 10 years:

CBO projects, that if current laws and policies remained unchanged, the federal budget would show a deficit of $1.3 trillion for fiscal year 2010. At 9.2 percent of gross domestic product (GDP), that deficit would be slightly smaller than the shortfall of 9.9 percent of GDP ($1.4 trillion) posted in 2009. Last year’s deficit was the largest as a share of GDP since the end of World War II, and the deficit expected for 2010 would be the second largest. Moreover, if legislation is enacted in the next several months that either boosts spending or reduces revenues, the 2010 deficit could equal or exceed last year’s shortfall.

but, if the so-called “Bush tax cuts” aren’t allowed to expire and the AMT isn’t indexed, we’ll have trillion dollar deficits for the next ten years:

Moreover, CBO’s baseline projections understate the budget deficits that would arise under many observers’ interpretation of current policy, as opposed to current law. In particular, the projections assume that major provisions of the tax cuts enacted in 2001, 2003, and 2009 will expire as scheduled and that temporary changes that have kept the alternative minimum tax (AMT) from affecting many more taxpayers will not be extended. The baseline projections also assume that annual appropriations rise only with inflation, which would leave discretionary spending very low relative to GDP by historical standards. If the tax cuts were made permanent, the AMT was indexed for inflation, and annual appropriations kept pace with GDP, the deficit in 2020 would be nearly the same, historically large, share of GDP that it is today.

At that point interest on the debt would be exceeded only by Social Security and Medicare as a proportion of the budget. Are you concerned now?

Don’t expect robust economic growth to save us from making painful decisions. There’s no foreseeable level of growth that would do that. We’re either going to start making sharp cuts in things we don’t want to cut, we’re going to raise taxes enormously, both, or we’ll have deficits as far as the eye can see and interest rates that are unbearably high.

5 comments… add one

  • steve

    If only we’d had people concerned about the debt in office for the last 30 years. Well there was that one eight year period, but other than that…….

    Looking at budget projections, it is Medicare that is the biggest killer. Republicans have just killed any attempts at cutting Medicare spending. Defense spending? I predict a filibuster. What spending can we really cut? Taxes? I see a filibuster there also. I think we will need a bigger crisis, which means harsher solutions.

    Steve

  • Well there was that one eight year period, but other than that…….

    I think that was actually just fortuitous timing in terms of the economy and such. Don’t get me wrong, its a good thing, and Clinton and his team deserve credit for not running out and running the deficit right back up, but that is was part of a grand master plan is not really believable.

    Looking at budget projections, it is Medicare that is the biggest killer. Republicans have just killed any attempts at cutting Medicare spending.

    LOL, wut?

    Excuse me, but in perusing the bills on health care expansion and entrenchment…oh sorry, “reform” there was no such mechanism for providing believable reductions in Medicare spending.

    Yes, the Republicans were obstructionist during this last go round, and got lucky there at the end (Brown’s win), but c’mon this idea that there was meaningful reductions in Medicare coming strains credulity.

    Defense spending? I predict a filibuster.

    Go to the CBO link Dave provides, click back to the main blog. Scroll down. Current proposals are for 7% growth in DoD spending. I don’t see a filibuster there.

    What spending can we really cut? Taxes? I see a filibuster there also. I think we will need a bigger crisis, which means harsher solutions.

    We can’t cut any spending. Special interest groups are extremely powerful. Taxes are probably going to be cut, and by that I mean once again Obama will extend Bush policies–i.e. the Bush tax cuts and the temporary “fixes” to the AMT. It is an election year and the Democrats are looking punch drunk boxers staggering around the ring. They’ll run home to what works: tax cuts. Because if they don’t it will mean higher taxes for many people including many middle class households. If that happens Obama chances in 2012 got alot slimmer, and even this year’s elections will look worse.

    As for a bigger crisis…what are you drinking cuz I want some! Must be some damn good stuff! :p

    See politicians loooooooove a good crisis. Look at the ubiquitous quote by Rahm Emannuel (and look where it has gotten his administration…chortle). It is during times of crisis that government expands both in terms of size and scope. And it never fully shrinks back. So a bigger crisis wont mean smaller more managable government, but just the opposite. Bigger less managable government.

    Dave has been posting about how government spending and its hand maiden industries (education, health care, etc.) cannot get us out of this mess. I don’t see too many, either Right, Left or whatever, arguing he is wrong. A bigger crisis wont do it. It will work the opposite way. Look at some of our biggest crises in the past:

    Great Deperession–check larger government in terms of scope and size.
    WWII–check larger government in terms of scope and size.
    Financial Crisis–check larger government in terms of scope and size.

    We get an even larger crisis, and one is undoubtedly coming since we love to set up crappy incentives in this country policy wise, it will just get worse, not better. Of course, maybe that is what you meant by harsher solutions. But then again, why do we “need” this kind of nonsense.

  • Brett

    we’ll have deficits as far as the eye can see and interest rates that are unbearably high.

    High interest rates would have an interesting effect. I suppose if you wanted to drive up the American savings rate and break the trade deficits the US has been running for years, that would be the way to do it.

  • steve

    On Defense spending, I was suggesting that any attempt to cut it would provoke a filibuster, not that it hadnt been raised.

    On Medicare, there was a provision for a Medicare advisory board. This is probably the one way you could actually make some bigger cuts in Medicare. Also, you may not have found the cuts credible, but it was actually an in the bill proposal. Medicare Advantage certainly could and should be cut. What is the take home message to politicians now ? Did you read any of the Scott Brown speeches?

    Steve

  • Also, you may not have found the cuts credible, but it was actually an in the bill proposal.

    I think it is Dave who has pointed out that Congress has passed everytime Medicare reimbursment rates come up. In other words, they’ve had plenty of chances to cut the spending, but they don’t. Given that evidence the idea that the “cuts” in the bill would be implemented is highly unlikely.

Leave a Comment