CBO: A do-noth­ing Congress could solve deficit woes

The Washington Times Weekly - - Politics - BY STEPHEN DI­NAN

In­side the lat­est long-term bud­get anal­y­sis from Congress’ chief score­keeper is a stun­ning bit of news: If Congress did noth­ing, the gov­ern­ment’s deficit prob­lems would be mostly solved.

The pain re­quired to leave gov­ern­ment on au­topi­lot would be se­vere: Taxes would rise from about 15 per­cent of the econ­omy to 23 per­cent by 2035 as the Bush tax cuts ex­pire and the al­ter­na­tive min­i­mum tax bites half of all tax­pay­ers. Mean­while, ba­sic do­mes­tic spend­ing would drop pre­cip­i­tously.

But the Con­gres­sional Bud­get Of­fice, in its lat­est long-term bud­get out­look, re­leased June 22, said that do-noth­ing sce­nario would leave the gov­ern­ment’s ledger in pri­mary bal­ance by 2017.

That con­trasts with CBO’s more an­tic­i­pated al­ter­nate sce­nario, in which Medi­care and So­cial Se­cu­rity spend­ing con­tinue apace, and Congress, fol­low­ing the same path it has taken in re­cent years, ex­tends pop­u­lar tax breaks past their ex­pi­ra­tion dates, while again de­lay­ing promised spend­ing cuts.

“Un­der CBO’s al­ter­na­tive fis­cal sce­nario, rev­enues would in­crease much more slowly than spend­ing, and debt held by the pub­lic would bal­loon to nearly 190 per­cent of GDP by 2035,” CBO said, adding that in­ter­est on the debt, which to­day ac­counts for about 1 per­cent of the econ­omy, would reach a stag­ger­ing 9 per­cent by 2035. “Such a path for fed­eral bor­row­ing would clearly be un­sus­tain­able.”

Congress has pep­pered the fed­eral bud­get with spend­ing and tax cuts it passes as tem­po­rary items, but which re­peat­edly get ex­tended. That has led CBO to be­gin is­su­ing two fore­casts: one, called the “base­line,” that fol­lows the law as it’s writ­ten, and the other “al­ter­na­tive all costs ex­cept in­ter­est on the debt, by the mid­dle of the cen­tury.

Un­der the more re­al­is­tic al­ter­nate sce­nario, rev­enue never goes above 18 per­cent of gross do­mes­tic prod­uct while spend­ing steadily rises to ac­count for more than 30 per­cent of the econ­omy by later this cen­tury.

Lawmakers said the les­son of the re­port is that Congress won’t be able to keep its prom­ises to

“Many of our lead­ers have been hop­ing that if they avoid the dif­fi­cult de­ci­sions for long enough, the prob­lem will fix it­self. To­day’s num­bers once again dis­prove this the­ory,” said Steve Bell, se­nior di­rec­tor of the eco­nomic pol­icy pro­ject at the Bi­par­ti­san Pol­icy Cen­ter. “Spend­ing re­mains near its high­est point as a per­cent­age of the econ­omy over the past 60 years, while rev­enues sim­i­larly re­main near their lows. Clearly, this mix of fis­cal pol­icy is im­pos­si­ble to main­tain.”

fis­cal sce­nario” that is more in line with what an­a­lysts think Congress would do if left unchecked.

The re­al­ity is likely to be dif­fer­ent from ei­ther sce­nario, but to­gether they bracket the chal­lenges fac­ing lawmakers.

Un­der the base­line sce­nario, rev­enue and spend­ing would equal­ize later this decade, and the gov­ern­ment would run a pri­mary bud­get sur­plus, mean­ing ev­ery­one.

The fig­ures were re­leased as the gov­ern­ment maxed out its bor­row­ing abil­ity, and Vice Pres­i­dent Joseph R. Biden and con­gres­sional lead­ers are try­ing to hash out an agree­ment that would raise the debt ceil­ing while ban­dag­ing the bro­ken bud­get.

Repub­li­cans say the prob­lem is over­spend­ing and want lim­its on fu­ture ex­penses. Democrats, mean­while, say the gov­ern­ment must get more rev­enue to be able to pay on its prom­ises.

In De­cem­ber, those two forces came to­gether on a bill that tem­po­rar­ily ex­tended the Bush-era in­come-tax cuts and also in­creased spend­ing for un­em­ploy­ment ben­e­fits, though at the cost of deeper short-term deficits.

Bud­get hawks said those kinds of deals are now un­ten­able.

“Many of our lead­ers have been hop­ing that if they avoid the dif­fi­cult de­ci­sions for long enough, the prob­lem will fix it­self. To­day’s num­bers once again dis­prove this the­ory,” said Steve Bell, se­nior di­rec­tor of the eco­nomic pol­icy pro­ject at the Bi­par­ti­san Pol­icy Cen­ter. “Spend­ing re­mains near its high­est point as a per­cent­age of the econ­omy over the past 60 years, while rev­enues sim­i­larly re­main near their lows. Clearly, this mix of fis­cal pol­icy is im­pos­si­ble to main­tain.”

Yet both sides on June 22 seemed to dig in.

Repub­li­cans said CBO’s num­bers con­firm their sense that the prob­lem is on the spend­ing side.

“There has never been a more ur­gent time to stop spend­ing money we don’t have,” said House Ma­jor­ity Leader Eric Can­tor, Vir­ginia Repub­li­can.

Demo­cratic sen­a­tors, though, said they will push for more eco­nomic stim­u­lus in the short term, in­clud­ing more in­fra­struc­ture spend­ing, in or­der to try to right the job mar­ket.

Se­nate Ma­jor­ity Leader Harry Reid, Ne­vada Demo­crat, said he has asked for ideas from sen­a­tors by Aug. 1, set­ting up a late-year push.

“We’re seek­ing poli­cies to build roads and bridges and dams and wa­ter sys­tems and sewer sys­tems, to cre­ate cleanen­ergy jobs, to pro­vide tax in­cen­tives for busi­nesses to hire new em­ploy­ees,” he said. “They’ve been proven to cre­ate jobs in the past.”

Among the scarier parts of the re­port is a warn­ing from CBO that as bad as things look, they could be worse.

That’s be­cause CBO said it can’t pre­cisely ac­count for the grim eco­nomic ef­fects of debt or any tax in­creases. But CBO said un­der the al­ter­nate sce­nario, real gross do­mes­tic prod­uct could be lower by as much as 18 per­cent in 2035.

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