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The Congressional Budget Committee released its latest long-term budget outlook this morning, which, of course, sparked a new round of rhetoric about the debt. The AP’s headline reads, “CBO: Debt crisis looms absent major policy changes.”
A new report says that the national debt is on pace to equal the annual size of the economy within a decade, levels that could provoke a European-style debt crisis unless policymakers in Washington can slam the brakes on spiraling deficits.
Putting aside the question of whether a European-style debt crisis would result if the debt reached 100% of GDP — there’s ample reason for skepticism — it’s worth emphasizing that the AP’s headline is largely backwards.
“Absent major policy changes,” deficits will shrink quite a bit. As Ezra Klein noted:
[The CBO’s long-term budget outlook] shows the same thing as always: If Congress lets the Bush tax cuts expire or offsets their extension, implements the Affordable Care Act as scheduled and makes or offset the Medicare cuts prescribed by the 1997 Balanced Budget Act — which CBO calls the “extended baseline scenario” — the national debt will be totally manageable.
If Congress passes laws extending the Bush tax cuts without offsetting the cost, repealing the Affordable Care Act and its cost controls and protecting doctors from Medicare cuts without making up the savings elsewhere — the “alternative fiscal scenario” — the national debt will be totally out of control.
I don’t doubt Republicans will seize on the CBO report and say, “See? We have to prioritize debt reduction immediately.” But party officials simply won’t consider a basic fact: if we do as Republican leaders demand, the debt they pretend to care about — the debt they largely created during the Bush era — gets much worse.
If we do nothing, on the other hand, the budget deficit shrinks a lot. As Annie Lowrey recently explained, “[D]oing nothing allows all kinds of fiscal changes that politicians generally abhor to take effect automatically.” David Leonhardt added, “As federal law currently stands, some significant tax increases are set to take effect in coming years.”
This isn’t popular to say, but if policymakers simply leave the status quo in place, and let nature take its course, taxes will return to Clinton-era rates, the Affordable Care Act will save us a lot of money, and the deficit will shrink considerably.
“Absent major policy changes,” the problem gets a whole lot better. The fact that the CBO helps prove this point today is worth keeping in mind.
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c u n d gulag on June 22, 2011 12:47 PM:
Never let a good crisis go to waste!
Especially one you manufactured out of thin air.
Oh, but we must ALL tighten our belts - say the people with expandable waist pants.
"The Shock Doctrine" at its finest.
T2 on June 22, 2011 12:56 PM:
this is another one of those CBO reports that the Repubs will ignore or challenge as biased. The Media will play along as ususal. The Dems may talk it up for a day or so. But what would really help is Pres. Obama to have an Oval Office speech about it and take the bull by the horns. But that doesn't seem to be his nature, at least on economic matters.
exlibra on June 22, 2011 1:31 PM:
T2,
If President Obama were to seize the bull by the horns, Republicans in both houses of Congress would have a cow. Harry Reid, the muleteer, would never allow it.
"igglic the" -- the glacial pace of "negotiations" will continue
dcsusie on June 22, 2011 2:02 PM:
Unfortunately, there is no way Congressional Dems are going to let the Bush tax cuts for under $250,000 expire in the middle of an election campaign, and no way Republicans will pass an extension unless it includes the cuts for the gazillionaires. So the only question is whether the Prez will stick to his postion that he will not allow the extension for over $250,000. I am not holding my breath on that one.
zandru on June 22, 2011 2:21 PM:
The rough part is that all these warnings about the upcoming financial apocalypse only affect Democrats. Republicans either don't care, or welcome the deluge, confident in assuming that they won't be blamed for it.
So, IF things play out as they have in the past, the Democrats will give the Republicans everything they want, and then some. This time, not only Medicare but Social Security are at stake.
Will you end the world for the US - or kick granny to the curb? Does it make a difference that granny now wears tea bags on her hat and is demanding that you just "butt out" of her social security?
One would think that the financial sector would be putting pressure on their Republican senators and representatives. Then one would recall that these guys no longer compromise or even think, and realize that Democrats are the only ones open to pressure or reason.
When the US hits the debt ceiling, it's unlikely that Congress will do anything helpful. We will be at the mercy of the Executive Branch to take drastic measures. Maybe we ought to phone, write, email, and fax to encourage the President to have something ready to go, like an announcement of a national emergency, which overrides the debt ceiling?
"iChain fever" - the excitement over Apple's latest product?
Doug N on June 22, 2011 3:53 PM:
Obama was held "hostage" on the Bush tax cuts and paid the ransom. The Greedy Wealthy will come to this well again.
FGS on June 23, 2011 2:49 AM:
If New York and California were threatened with bankruptcy because the Confederate states couldn't pay their debts, then it would be a European-style debt crisis.