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.
The House of Representatives has a constitutional obligation to pass a yearly budget, through which it then appropriates money (taxes) for the business of government. Supposedly no budget, no spending.
But Congress has, over the years, hit upon a legislative convenience called a “continuing resolution” where it simply picks a figure from the sky, passes it and continues funding government sans budget. The only possible hope for stopping such a practice is a president who insists on a budget and promises to veto continuing resolutions.
That, of course, isn’t going to happen with this White House. No budget is going to be passed by Congress either – at least not until after November. And there’s a reason they’re engaging in this classic bit of nonfeasance. If they pass the budget they must before the November election, they’ll have to explain the trillion dollar deficit that is anticipated in the plan to their constituents. Can’t have that, can we?
On the other hand, they have plenty of time to try to pass campaign finance reform again. In fact, the House plans on taking it up on Thursday. When it comes to curtailing freedom the Democrats have an uncanny ability to rush things through – and especially if the legislation is likely to help them come November.
Congress – again ignoring the people’s business for the party’s business.
Last but not least, Democrats, knowing they have to either find a new revenue source in lieu of cutting spending have decided they’re not bound by President Obama’s tax vow.
I know, I know – you’re shocked, right?
In this podcast, Bruce, Michael, and Dale discuss DADT, The Euro, and the spiraling cost of ObamaCare…even before we’ve gotten any of it.
The direct link to the podcast can be found here.
The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.
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I’m sure this is a CBO report (the “gold standard” remember) that Democrats and the administration will try to ignore. Especially since adding to the debt so significantly with ObamaCare.
President Obama’s fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation’s economic output by 2020, the Congressional Budget Office reported Thursday.
In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president’s budget would generate a combined $9.75 trillion in deficits over the next decade.
Of course that’s a static assessment that assumes nothing changes over the next few years. Or said another way, if left to their devices, this is precisely what Democrats and this administration plan for our future. And all the denial in the world won’t change that. This is a plan for fiscal ruin.
To put it in a more easily understandable context:
The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it’s headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO’s deficit estimates.
That figure would equal 90 percent of the estimated gross domestic product in 2020, up from 40 percent at the end of fiscal 2008. By comparison, America’s debt-to-GDP ratio peaked at 109 percent at the end of World War II, while the ratio for economically troubled Greece hit 115 percent last year.
So, is it time to demand those calling the path we’re on “unsustainable” (i.e. Timothy Geithner, Barack Obama and the Democratic Congress) to put up or shut up? As usual, we continue to hear Democrats blather on about PAYGO, but we continue to see them ignore it in legislation they pass. It appears, given the budget numbers, they also plan to ignore it in the future – wouldn’t you say?
Look at that per household figure from 2008. It was already outrageous and yet within the next 10 years they plan on tripling it to $172,000.
Anyone have any idea of the effect such debt will have on our economy?
For countries with debt-to-GDP ratios “above 90 percent, median growth rates fall by 1 percent, and average growth falls considerably more,” according to a recent research paper by economists Kenneth S. Rogoff of Harvard and Carmen M. Reinhart of the University of Maryland.
Hey, when you have the fiscal policy of Greece or Argentina, what do you suppose the end result might be?
The irony not to mention the hypocrisy contained in this clip (from Feb 13) can make one seriously wonder if the man who has proposed 10 years of huge deficit budgets that would put us in an unimaginable debt hole thinks he’s fooling anyone with this. It is simply breathtaking in its temerity and arrogance:
Has anyone ever considered the fact that so much debt and borrowing is a national security problem?
“From 1789 through 2008, the U.S. government borrowed a total of $5.8 trillion. In 2009, the federal budget deficit exceeded $1.4 trillion. The administration now expects the 2010 deficit to break that record, topping $1.6 trillion. And in 2011, it would only fall to about $1.3 trillion. Thus, in just three years, the debt will have jumped an astonishing $4.2 trillion.” – James Capretta, a Fellow at the Ethics and Public Policy Center
Those to whom we own money – especially as much as we do – hold some pretty powerful leverage. The Chinese military has been stomping around all week urging their government to use it. They want China to sell some US bonds to deliver a little “economic punch” to get our attention, apparently.
“Bush made me do it” won’t work when piling up this much debt. The GOP’s ready-made economic and national security issue is found within the quote. That assumes they don’t just placidly go along with the mammoth increase in the debt. And that’s never a safe assumption.
Progressives like to talk about “progressive taxes”. It’s code language for screw the rich. That’s precisely what President Obama is proposing in his budget proposal. Now to be clear, none of this is new or a surprise – he said this is what he planned on doing all along. However that doesn’t make it “progressive” or sustainable. His budget proposal includes plans to:
—Raise the top two income tax rates for individuals, from 33 percent and 35 percent, to 36 percent and 39.6 percent, respectively. Unless Congress intervenes, those rates will rise next Jan. 1 when Bush’s tax cuts expire. That government would reap $365 billion over the next decade.
—Limit the itemized tax deductions high earners can claim for charitable donations, mortgage interest and state and local taxes, raising about $210 billion for the next decade.
—Increase the top capital gains tax rate from 15 percent to 20 percent for families making more than $250,000 a year and individuals making more than $200,000. The proposal would raise about $105 billion.
Of course we’re back to the old “static” analysis model here. These numbers hold if none of those effected do anything to protect their earnings and assets (or the market doesn’t research and find loopholes which allow such protection of assets) over the next decade.
So the chance of this revenue stream remaining intact and at the level suggested here is highly unlikely if you know anything about human nature and how markets work. Look at the UK for instance where the same sort of nonsense is happening:
Mike Warburton, senior tax adviser at Grant Thornton, one of Britain’s biggest accounting firms, said that clients were pursuing four main ways to avoid paying half their salary in tax: bumping up this year’s pay; storing up pay in their firm to be drawn down at a later date; leaving the country; or choosing to pay it to charity rather than the taxman.
“People are taking obvious avoidance measures because they are not prepared to pay 50 per cent tax,” Mr Warburton said.
It is unlikely they’ll be any more “prepared” to do so here than there.
Also unlikely are cuts in spending which are really what are needed. Once Congress sees this revenue stream established, even for a year – heck, even hypothetically – they’re likely to spend what is promised in the outlying years and use it in their PAYGO justifications.
Then there’s the aspect of his proposals which use the tax code to punish businesses or encourage them to not do business here at the level at which they are now engaged:
—Change the way profits made by investment fund managers are taxed, raising an additional $24 billion over the next decade.
—Impose a “financial crisis responsibility fee” on large financial institutions, raising $90 billion over the next decade.
—Restrict the ability of international companies to defer taxes on profits made overseas, raising about $26 billion over the next decade.
—Impose a total of about $39 billion in tax increases on oil, gas and coal companies over the next decade.
The tax on oil, gas and coal will simply raise the price at the retail level for all consumers, giving lie to the Obama promise that taxes won’t go up “one dime” for 95% of Americans. Additionally, the tax on the energy companies, passed on to consumers, will affect the poor much more than others. There are other ways to extract that pound of flesh than through income taxes and the administration knows that only too well, whether or not Obama supporters want to admit it or not.
And both he and they will have difficulty making that claim at all if this remains in the budget:
According to a report by The Hill President Barack Obama is seeking to end a middle-class tax break he once said would be permanent.
The $3.8 trillion budget request rolled out by the White House on Monday would renew the Making Work Pay tax credit for fiscal 2011, but then would have it sunset
Yes, that’s right, instead of making that middle class tax cut permanent as he promised, he’s proposing it “sunset” (i.e. go away) after FY 2011 (just before the 2012 election and the tax prep season so it won’t effect voters till after the election).
All in all, taxes would increase $1.1 trillion (again, assuming no person or no business effected does anything to avoid these taxes) over a decade.
Yes, that’s a lot of money – but then we’re running a deficit this year of $1.6 trillion, of which 40 cents of every dollar spent is borrowed. So while $1.1 trillion seems enormous, it’s really a drop in the ocean when looking at the promised spending over the next decade.
So listen carefully to soothing promises of fiscal restraint and concern about the deficit (and debt) in the coming weeks as the administration and Congressional Democrats give lip service to PAYGO and spending restraint. Then review this chart. The chart is their plan. If you can find any spending restraint or real deficit or debt reduction in there, please point it out. This budget and the outlying budgets are a plan for fiscal ruin. We now, for the first time, owe more than our entire GDP is worth, and the Obama administration apparently plans to see if it can double that in the shortest time possible. Any doubts about where this is headed?
And: are you beginning to understand what the Tea Parties are about yet?
The President, Democrats and some pundits have been trying to set the public up for this for a few weeks. They talk about how important deficit reduction is in the long term, but claim that when the economy is bad and unemployment is high that is not the time to be pursuing that goal. Paul Krugman, for one, has been saying it for months. And Obama made that claim in his State of the Union address. The entire reason behind the prep was to prepare the public for massive spending and budget deficit proposal – neither of which we can afford. In anticipation of this, Democrats quietly raised the debt ceiling $1.9 trillion last week:
President Barack Obama will propose on Monday a $3.8 trillion budget for fiscal 2011 that projects the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down to about $700 billion, or 4% of the gross domestic product, by 2013, according to congressional aides.
The deficit for the current fiscal year, which ends on Sept. 30, would eclipse last year’s $1.4 trillion deficit, in part due to new spending on a proposed jobs package. The president also wants $25 billion for cash-strapped state governments, mainly to offset their funding of the Medicaid health program for the poor.
Now of course, as any good Democrat knows, this is all George Bush’s fault. They are being forced to spend this money because Bush wrecked the economy.
With that now out of the way, some interesting things are to be found in the two paragraphs cited. One, deficit year two is larger than deficit year one. Why? Because the Obama administration and the Democratic Congress spent the previously budgeted money (40 cents of every dollar borrowed) on pet projects and nonsense which were not simulative at all. Now they’re faced with the same crisis that faced them at this time last year and they’re again coming up with the same solution – throw money at it. However this time the new “stimulus” will be disguised as a “jobs bill”.
Then take notice of the claim by “congressional aides” that the deficit will be “down” to a mere $700 billion by 2013. That’s based on the assumption, per the Wall Street Journal, that some spending cuts “that have previously been proposed without success” will be passed and work as promised. Anyone – what’s the track record on those sorts of assumptions?
Of course what’s interesting is that $700 billion will be less than half the deficit proposed in this year’s budget thereby allowing Obama to claim he fulfilled the promise of “cutting the deficit in half” by the end of his first (and hopefully only) term. Hey, he never said how high he’d run it to make that promise come true, did he?
Note too that there’s a bailout of the states included in this budget. Is that a precedent we want to set? And what does the bailout address? Government run health care. It is, as usual, costing more than anticipated. Why should anyone believe government’s control of more of that market will cost less?
President Obama is also pushing for a bi-partisan debt committee to be empanelled by Congress to address the debt.
A bipartisan 18-member debt commission would forward any deficit-reduction proposals they come up with to Congress after this year’s midterm elections. Issues it would face would include how to cut the deficit further in the short term and how to rein in long-term growth of entitlement programs, such as Medicare, Medicaid and Social Security. Commission members would have to come up with between $180 billion and $190 billion in cuts to meet the president’s target.
Congressional leaders have promised the president that they would submit the panel’s recommendations to an up-or-down vote in the lame-duck session of Congress, after the elections but before the newly elected House and Senate take office.
Although it is recognition of the critical problem to our national solvency the debt represents, it is also a political ploy to shift responsibility to Congress and require them to make all the unpopular cuts necessary to reduce that debt. Congress becomes the focus of the public’s ire if it cuts favored programs, not the President. It’s another attempt by Obama to shirk his leadership role and avoid blame for making tough choices. As usual, he’ll talk about it and he’ll pontificate, but he expects others to do the dirty work and suffer the political consequences of proposing and making spending cuts and ending programs. That’ll work out well, I’m sure.
Note too that even Congress isn’t at all enthusiastic about it – they would only do these cuts in lame-duck sessions after an election but before the new Congress is seated.
And I had to laugh at this:
White House officials say they are ready to make some tough choices to get the deficit under control. White House communications director Dan Pfeiffer wrote on the White House Web site this weekend that the president’s budget would propose to terminate or cut back more than 120 programs, saving about $20 billion in the fiscal year beginning in October.
Budget proposal: $3.8 trillion. Deficit: $1.6 trillion. “Tough choices”: $20 billion.
Programs which might – I want to stress that point, might – be terminated to achieve that huge $20 billion in savings?
The proposals include consolidating 38 education programs into 11, cutting the National Park Service’s Save America’s Treasures and Preserve America grant program, and eliminating the Advanced Earned Income Tax Credit, which allows low-wage workers to get tax-credit checks in advance but which is rife with abuse, White House officials say. The Brownfields Economic Development Initiative, which converts decayed former industrial sites to new uses, would be cut, and payments ended to states to restore abandoned mines, many of which have been long cleaned up.
Social Security? Medicare? Medicaid? You know, the big drains on the budget?
Nada. Can firmly kicked to the non-existent Congressional panel (and no, the health care reform debacle didn’t address Medicare or Medicaid reform in any meaningful way) to address. He can find the will to propose huge budgets and incredible levels of spending, but apparently he’s just not going to take the political risk of proposing real and substantial cuts to spending or ending wasteful and unnecessary programs.
So we are now well into the Obama era of trillion dollar deficits (all Bush’s fault, remember) with really no end in sight. Certainly the administration wants you to believe an end is in sight, but recall that all rests on their projections and assumptions. And we all have enough experience with government projections and assumptions to know what they’re really worth.
A bucket of warm spit, if that.
The Washington Post is just shameless. How else would you describe this:
The federal budget deficit soared to a record $1.4 trillion in the fiscal year that ended in September, a chasm of red ink unequaled in the postwar era that threatens to complicate the most ambitious goals of the Obama administration, including plans for fresh spending to create jobs and spur economic recovery.
Still, the figure represents a significant improvement over the darkest deficit projections, which had been as much as $400 billion higher earlier this year, when the economy was wallowing in recession.
Or said another way, 1.4 trillion in new debt isn’t so bad – some guy earlier this year thought it would be 1.8 trillion.
Here, let’s do the graphics and decide how much of a “significant improvement” this is:
A few paragraphs later after trying to sell everyone on how this chasm of difference has actually ended up being beneficial, the Post mentions:
At about 10 percent of the overall economy, the gap between federal spending and tax collections is the largest on record since the end of World War II, and bigger in nominal terms than the past four years of deficits combined. Next year is unlikely to be much better, budget analysts say. And Obama’s current policies would drive the budget gap into the trillion-dollar range for much of the next decade.
Geithner is mentioned saying that “deficits are too high” and Peter Orszag is quoted saying:
“The president recognizes that we need to put the nation back on a fiscally sustainable path.” As Obama draws up his second budget blueprint, due to be delivered to Congress in February, Orszag said, “we are considering proposals to put our country back on firm fiscal footing.”
Are “we”? Cap-and-trade. The take-over of the health care system. Government owned auto companies. Trillion dollar deficits for at least a decade. A doubled money supply and $533,000 jobs?
The Post manages to destroy all the happy talk, though, in what must have been an inadvertent fit of journalism contained in one sentence:
Orszag has already instructed federal agencies to identify spending cuts for next year’s budget, but the report comes as lawmakers contemplate proposals that would drive spending even higher.
And, of course, the guy right smack dab in the middle of encouraging all of that higher spending is the same guy Orszag is claiming wants to put the country back on “firm fiscal footing”.
If double-talk were money, this administration would be running a surplus. And the Washington Post isn’t so bad at it either.
Right about what? Well, in this case, the 10 year budget estimate. Remember this chart first seen in March?
This was the difference between the Obama administration and the CBO estimate based on the Obama administration’s 10 year budget. At the time the CBO said that the budget estimate would raise the debt by 9.1 trillion dollars. The Obama administration said, at the time, that the CBO was wrong.
Quietly, at 7pm this last Friday night, the Obama administration raised its estimate of what their budget would add to the debt by the 2 trillion the CBO had said was always there. What that means for the chart is you can ignore the pastel red bars – the Obama estimate – in favor of the dark red bars.
The administration claims that its change in the estimate is due to things which have apparently changed since March, but of which they were just unaware might happen:
Obama administration officials have concluded the economy was much worse last year — and tax revenues much lower — than they had initially assumed, which means that the estimated budget deficit will increase from $7 trillion to about $9 trillion over the coming decade.
This has to give you all sorts of confidence in other White House cost estimates not to mention their denials of the CBO’s accuracy on things like cap-and-trade and health care in favor of their own.
They didn’t know enough to make an accurate estimate. But the CBO did.
So when the administration says that health care reform will save money and the CBO says it will “bend the cost curve upward”, what should this example lead us to believe?
The cost curve is going to bend upward.
UPDATE: James Pethokoukis thinks this is a prelude to CBO kicking their estimate up a notch:
Expect the CBO to also crank up its forecast, which will be higher than the administration’s. Also, this is further evidence that the common wisdom that people don’t care about budget deficits (no matter what the polls say) is wrong. C’mon, leaking such news on a late Friday afternoon?