Our coming fiscal trainwreck
Last Friday, the Committee for a Responsible Federal Budget released a report commenting on the CBO’s long term budget outlook. As one might imagine, it’s not pretty:
Yesterday, the Congressional Budget Office (CBO) issued its Long Term Budget Outlook. Under CBO’s “Extended-Baseline Scenario,” the long-run fiscal picture has slightly worsened over the next twenty years, compared to last year, but significantly improved over the longer run – due largely to the impact of health care reform on spending and especially revenues. However, CBO’s overall analysis shows the budget to be on an unsustainable path, with debt moving to unprecedented and cripplingly high levels.
One has to wonder how any budget found to be on an “unsustainable path, with debt moving to unprecedented and crippling high levels” could at the same time show significant improvement over “the longer run”. The fact remains that whatever “significantly improved” picture any particular budget provides over another one, the bottom line remains “unsustainable, unprecedented and crippling” for our future. The Committee’s report goes on:
Under current law, CBO projects that public debt will rise from 62 percent of GDP this year, to 84 percent by 2040, and to 107 percent by 2080. This scenario is highly optimistic, since it assumes that all the 2001/2003 tax cuts will expire this year as scheduled, there will be no AMT patches or doc fixes, all of the savings in the health care bill will be sustained over the next two decades, and revenues will eventually exceed 30 percent of GDP.
“Highly optimistic” doesn’t begin to describe this budgetary charade. A 6 month “doc fix” has been passed the Senate and is awaiting House approval. Most believe it will continue to be passed in the foreseeable future. Legislators do not have the spine necessary to refuse the fix and weather the consequent political fallout which would see a mass exodus of doctors from the Medicare program. And anyone with the IQ of an onion knows that the “waste, fraud and abuse” savings promised for health care are simply throw-away promises made to balance out the numbers and get the bill passed into law.
So there are no savings on the way through health care. Optimistic is the wrong word to use here. It should be “fraudulent”. In fact, if we throw out the fraudulent health care assumptions, we end up with reality – which CBO calls its “Alternative Fiscal Scenario”:
Under CBO’s Alternative Fiscal Scenario, which does not make these assumptions, debt will rise to 87 percent by 2020, 233 percent by 2040, and to 854 percent by 2080.
There’s the most likely picture we’ll see in 2020. And frankly, at that point, it will almost be a runaway fiscal train. Impossible to stop and headed for a disastrous crash.
Even under the “highly optimistic” scenario, we’re in deep, deep trouble:
Yet, even under the current law revenue scenario – in which all the 2001/2003 tax cuts expire at the end of this year, policymakers discontinue the annual practice of enacting AMT patches, real bracket creep continues unfettered into perpetuity, and the excise tax on high cost health care plans grows to raise an increasing amount of revenue (3 percent of GDP by 2080) – revenues will fall short of spending. And under this scenario, revenue will grow to 30 percent of GDP. That’s twice as large a share of the economy as we will raise in 2010, and nearly 50 percent greater than any time in our history.
We’re certainly seeing history in the making, but it isn’t history in which we should be willing participants. The solution isn’t difficult to see, but politically its implementation is very hard to do. That’s because there are no political incentives to solve the problems. In fact, there are tremendous political incentives not to do that. That’s because no matter how much fiscal sense austerity measures (spending cuts, reductions in force, closing government agencies and departments, etc.) make, they’re painful and a political minefield. And we’ve yet to see the political class – regardless of their ideological bent – willing to seriously tackle this crisis in any meaningful way and take the political hits necessary to do so.
No one really expects that to change. Of course, that means the doomsday analysis by the CBO, which will be mostly ignored by politicians on both sides, is likely to come to pass. What the politicians of today plan on doing is letting those of their ilk in office at the time the fiscal train crashes deal with it and the fallout. How’s that for being ill served by the political class? Of course it’s nothing new – it’s been going on for decades.
Unfortunately for us, when the avoidable crisis finally hits in the near future, it will most likely be too late to do what is necessary and politically viable at the same time. Those stuck with the problem, at that time, will essentially have to commit political suicide. Of course, given the gravity of the situation they will face, they’ll have absolutely no choice.
What will come out of the trainwreck is anyone’s guess – but whatever it is will be a country that is weaker, less powerful and more vulnerable than it has been since its founding. And its enemies will be sure to take advantage of that situation, you can count on it.