Yesterday’s release of the Congressional Budget Office’s (CBO’s) Budget and Economic Outlook was no cause for celebration. True, the projected deficit for fiscal year 2014 (October 2013 to September 2014) was revised down to $514 billion (from $560 billion) — the lowest yet for the Obama administration. And true, the deficit falls to 3 percent of GDP or less until 2018. And true as well that the debt (in the hands of the public) falls trivially between now and 2017.
None of this is good news because:
(1) The stable numbers on the administration’s watch give it an excuse to do nothing to reduce the deficit and debt, leaving less time and a bigger problem for the next president;
(2) The CBO projects nearly $8 trillion in additional deficits over the next 10 years;
(3) The deficits will add over $9 trillion to the existing $12 trillion in debt outstanding;
(4) The CBO revised down the pace of economic growth, in part because it revised up its estimated damage from ObamaCare;
(5) Both the deficit and debt grow inexorably, even as a percent of GDP, from 2017 onwards;
(6) The red ink is fueled by spending programs; revenues stabilize at roughly 18 percent of GDP while spending rises from a low of 20.5 percent this year to 22.4 percent (and rising) in 2024;
(7) The spending as projected by CBO is fundamentally too optimistic because:
It assumes that the discretionary spending caps (“sequester”) are not altered between now and 2022 despite the fact that Congress has already revolted against their stringency,
Medicare doctors take a 24 percent cut in their reimbursements,
Health care spending growth remains muted for a decade, and
Interest rates do not rise abnormally even as interest payments begin to dominate the deficit.
As the economy recovers, deficits compete with Main Street for the credit needed to fuel growth. High levels of debt are a promise of higher taxes or higher interest rates — a recipe for poor growth — unless strong spending controls are enacted. The CBO projections paint a future of deficits, high debt, and spending without control.
Doing nothing is risky — like walking barefoot on a knife’s edge toward a minefield — but is exactly what the administration will propose.
— Douglas Holtz-Eakin is the president of the American Action Forum. You can sign-up for The Daily Dish here.