Fiscal Doom: What You Weren’t Told About the Latest Budget News

Political leaders and reporters miss the forest for the trees in CBO’s deficit and debt projections.

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Ron Fournier
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Ron Fournier
July 22, 2014, 5:45 a.m.

Only in Wash­ing­ton, the place where you land when you fall through the look­ing glass, could this be hailed as good news:

Between 2009 and 2012, the fed­er­al gov­ern­ment re­cor­ded the largest budget de­fi­cits re­l­at­ive to the size of the eco­nomy since 1946, caus­ing its debt to soar. The total amount of fed­er­al debt held by the pub­lic is now equi­val­ent to about 74 per­cent of the eco­nomy’s an­nu­al out­put, or gross do­mest­ic product (GDP) — a high­er per­cent­age than at any point in U.S. his­tory ex­cept a brief peri­od around World War II and al­most twice the per­cent­age at the end of 2008.

If cur­rent laws re­mained gen­er­ally un­changed in the fu­ture, fed­er­al debt held by the pub­lic would de­cline slightly re­l­at­ive to GDP over the next few years, CBO pro­jects. After that, however, grow­ing budget de­fi­cits would push debt back to and above its cur­rent high level. Twenty-five years from now, in 2039, fed­er­al debt held by the pub­lic would ex­ceed 100 per­cent of GDP, CBO pro­jects. Moreover, debt would be on an up­ward path re­l­at­ive to the size of the eco­nomy, a trend that could not be sus­tained in­def­in­itely.

Those are the first two para­graphs of the Con­gres­sion­al Budget Of­fice’s latest re­port. Our de­fi­cit levels (an­nu­al totals of red ink) are stalled at breath­tak­ingly high levels — and are pro­jec­ted to soar again in a few years, pier­cing the $1 tril­lion mark. Our debt (money owed to the United States’ cred­it­ors) is on pace to ex­ceed the GDP (the value of goods and ser­vices pro­duced) by the time today’s col­lege gradu­ates turn 50.

Scary news, right? Not ac­cord­ing to many me­dia out­lets and a cyn­ic­al lead­er­ship class in Wash­ing­ton. Some news or­gan­iz­a­tions fo­cused on the sug­ar-high of good news — the (tem­por­ary) dip in de­fi­cits. Politico‘s lede:

The fed­er­al budget out­look will con­tin­ue to im­prove this year, with the de­fi­cit pro­jec­ted to shrink to $514 bil­lion — the low­est level since Pres­id­ent Barack Obama took of­fice.

Think of a re­port­er cov­er­ing a shoot­ing. The po­lice tell him the vic­tim is dy­ing of blood loss. Is the head­line, “Shoot­ing Vic­tim Ex­pec­ted to Die” or “Blood Flow Slows for Shoot­ing Vic­tim”?

Al Ka­men of The Wash­ing­ton Post mocked de­fi­cit scolds un­der the head­line “Re­mem­ber the De­fi­cit?” In a clause six para­graphs in­to his column, he re­veals the de­fi­cit is “ex­pec­ted to rise sharply in com­ing years.”

Like many on the left, Mike Grun­wald of Time magazine cherry-picked the CBO num­bers to ar­gue against aus­ter­ity. He waited un­til his last para­graph to in­form read­ers that the debt is ex­pec­ted to grow from 74 per­cent of GDP today to 106 per­cent in 25 years, and then noted (cor­rectly) that Pres­id­ent Bush squandered the Clin­ton-era sur­pluses.  It’s nev­er too late for the news and a par­tis­an shot.

This is the sub­head on Grun­wald’s piece: “Fisc­al doom will be delayed thanks to lower health care in­fla­tion in re­cent years. But will Con­gress take no­tice?” Thanks to? Dooms­day is com­ing — a little later than feared — so let’s give thanks, and spend!

My col­league Billy House knows how to get to the heart of a story. His lede:

The na­tion is doomed to re­turn to tril­lion-dol­lar short­falls by 2024 if law­makers don’t al­ter ex­ist­ing tax and spend­ing policies, con­gres­sion­al aud­it­ors warned on Monday.

Billy dinged Demo­crats for seiz­ing “op­tim­ist­ic­ally on a smal­ler as­pect of the re­port: that the fed­er­al gov­ern­ment’s sub­sidies for the health care ex­change premi­ums un­der the Af­ford­able Care Act will be lower than pre­vi­ously pro­jec­ted.”

Ac­cord­ing to the non­par­tis­an CBO, the na­tion’s spend­ing pres­sures stem from an aging pop­u­la­tion, rising health care costs, and an ex­pan­sion of fed­er­al sub­sidies for health in­sur­ance. Moreover, in­terest rates are ex­pec­ted to climb, adding to the red ink.

CBO urged polit­ic­al lead­ers to ad­dress the prob­lem now, rather than wait to deal with few­er op­tions and worsen­ing con­sequences. The solu­tion is a budget deal that neither Pres­id­ent Obama nor House Speak­er John Boehner seems to pos­sess the cour­age and/or abil­ity to strike.

To put the fed­er­al budget on a sus­tain­able path for the long term, law­makers would have to make sig­ni­fic­ant changes to tax and spend­ing policies: re­du­cing spend­ing for large be­ne­fit pro­grams be­low the pro­jec­ted levels, let­ting rev­en­ues rise more than they would un­der cur­rent law, or ad­opt­ing some com­bin­a­tion of those ap­proaches.  

High­er taxes, few­er en­ti­tle­ments. It’s go­ing to hap­pen soon­er or later, pain­fully or more pain­fully, and nobody in charge in Wash­ing­ton seems to care.

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