CBO: Long-term deficit depends on congressional decisions
The Congressional Budget Office released the latest version of the long-term budget outlook today. It's an interesting document, because it requires the CBO to do some fancy footwork. In theory, CBO's deficit assumptions project the effects of settled law. And if you do that, revenues pretty much pay for spending over the next few decades. See for yourself:
But current law is not likely to advance unmolested. You'll notice, for instance, that there's a big jump in current-law revenues next year. That's because the Bush tax cuts are slated to expire totally. But few expect Congress to allow them to expire totally. They're likely to preserve the bulk of the cuts, rejecting only some of the cuts that helped out the rich.
So the Congressional Budget Office also publishes an alternative scenario. In this world, we fix the Medicare doctor payment system so that our budget forecasts show how much we're actually paying doctors (the one-year increases in pay we've been doing lately leave the long-term forecasts artificially low), the cost-control elements of the Affordable Care Act aren't implemented, and, well, I'll let CBO explain the big gun: "More important, CBO assumed for this scenario that most of the provisions of the 2001 and 2003 tax cuts would be extended, that the reach of the alternative minimum tax would be kept close to its historical extent, and that over the longer run, tax law would evolve further so that revenues would remain at about 19 percent of GDP." Here's what that looks like:
It sounds silly to say this, but policy decisions matter. We could put down a carbon tax, or a financial-transactions tax, or cut defense spending by a trillion dollars, and that would improve the outlook even more. We could refuse to implement the elements of current law that reduce the deficit and that would make the deficit outlook much worse.
There was a lot of talk during health-care reform that there was simply no way Congress would allow the excise tax to go into effect. At the time, I termed that deficit nihilism, and this graph is a good illustration of why: Either Congress can pass and implement policies that will bring the long-term deficit under control or it can't. Those are the only two choices here. But there's no real mechanism for getting the deficit under control aside from Congress passing laws and then sticking to them.
June 30, 2010; 9:45 AM ET
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