With everything that has been happening in Syria and yesterday’s focus on the Federal Reserve’s decision to continue its easy money program, a report on Tuesday from the Congressional Budget Office went mostly unnoticed. This is unfortunate because the report is important and cautionary. Here is what The Wall Street Journal’s MarketWatch had to say on the report, with a few of my comments added:
“Congressional budget analysts on Tuesday issued a stark new warning about the long-term U.S. budget outlook, just as lawmakers and the White House are staring at a pair of fiscal confrontations.
The nonpartisan Congressional Budget Office said that the U.S. national debt is now 73% of gross domestic product, the highest in history except for a period around World War II. The figure is twice the percentage it was at the end of 2007.”
Hmmm. Highest debt in history, other than during and shortly after World War II. We know what we got from the debt we incurred during World War II. It was worth it. I wonder, however, what we got from the deficits we incurred during the last five years and whether it was worth it.
“Modestly lower spending, an improving economy and increased collection of income, payroll and corporate taxes have helped narrow the government’s deficit this fiscal year. If current laws remain in place, CBO said, the debt will decline ‘slightly’ relative to GDP over the next several years – totaling 68% of the economy by 2018.”
Looking at the CBO’s chart:
we can see how the Obama administration tries to ignore this
problem. They look at their time in
office and say the debt is heading down as a percentage of the GDP. They even say it is stable over the next ten
years, which is the budgeting window people tend to use in Washington. But that doesn’t work for the country as a
whole. We have a problem, and the sooner
we address it, the easier it will be to solve.
It might not be easier for President Obama to deal with it now, but it
would be better for the country if he did.
Also, even the decrease in the relative debt level that the CBO is projecting for 2018 assumes “current laws remain in place.” That means the sequester stays in place. But President Obama and Congressional Democrats don’t want that to happen. They want to spend more money. If pressed on what this would do to the debt, they just say they can make up the money by having the rich pay their “fair share” in taxes.
Of course, they never say what percentage constitutes a “fair share.” Taxes were already increased in the year-end budget deal and in Obamacare, but President Obama says that is still not enough. It makes you think that “fair share” is just another way of saying “more,” no matter how much people are paying now.
The CBO makes a final point:
“‘Because federal debt is already unusually high relative to GDP, further increases in debt could be especially harmful,’ the CBO report said. It said lawmakers would have to make ‘significant changes’ to tax and spending policies to put the U.S. budget on a sustainable path for the long term.”
Here is the real problem. The numbers in the CBO report leave have no room for error. They assume everything goes fine. But the fact is everything doesn’t go fine. The CBO projections, which are themselves based on assumptions that may not be true (i.e., the sequester staying in place), don’t allow for any hiccups or bad news. One minor recession and the debt number goes through the roof. That is no way to run a country.
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