A $1.5 trillion deficit ought to be cause for compromise

According to the Congressional Budget Office, the deficit for fiscal 2011 will hit $1.5 trillion, or almost 10 percent of the nation’s gross domestic product. While the estimate is considerably higher than earlier CBO estimates, it’s also not a surprise. The estimates jumped after Congress and President Obama agreed late last year to extend the Bush tax cuts and continue paying extended unemployment benefits, in some cases for as long as 99 weeks.

Source: CBO/Jay Bookman

By law, the CBO is also required to try to look 10 years into the future in order to give policymakers some guidance about the longer-term impact of their decisions. The chart to the right, for example, documents the CBO projection of what the deficit — as a share of gross domestic product — will do between now and 2020.

At first glance, it doesn’t look so bad. Note the sudden improvement in fiscal 2013 and 2014, with the deficit as a share of GDP dropping by more than two-thirds. However, that improvement assumes that the Bush tax cuts disappear as scheduled after 2012, with taxes reverting to 2000 levels. (It also assumes that other pieces of law, including the so-called “doc fix,” are allowed to disappear as scheduled.)

Congressional Republicans, of course, have no intention of allowing that to happen. They have convinced themselves and their followers that it is possible to address a problem of this magnitude simply by cutting spending.

They have not, however, been able to convince the accountants or anybody else with any familiarity with the numbers.

For example, the GOP’s ambition is to force a cut of as much as 20 percent in non-defense discretionary spending, a step that would do very real damage to popular, even necessary programs. But let’s say that they succeed, that they are able to get those cuts through a Democratic Senate and signed into law by President Obama. What will they have accomplished?

Well, nondefense discretionary spending amounts to 15 percent of the budget. Cutting 15 percent of the budget by 20 percent cuts the overall budget by a whopping 3 percent. That doesn’t come close to offsetting the impact of making the Bush tax cuts permanent.

Earlier this week, in the GOP response to the president’s State of the Union, U.S. Rep. Paul Ryan spoke of the deficit in near apocalyptic terms:

“Speaking candidly, as one citizen to another: We still have time… but not much time. If we continue down our current path, we know what our future will be.

Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.

Their day of reckoning has arrived. Ours is around the corner. That is why we must act now.”

Personally, I thought Ryan’s rhetoric was a bit melodramatic, but the problem he describes is real. If he is honest in his concern, he knows that as a matter of politics and a matter of math, the problem can be addressed only through a combination of spending cuts and tax increases.

Republicans can’t enact spending cuts of the size needed, particularly in slowing the growth in entitlements, without Democratic help. Democrats can’t enact tax increases of the size needed without Republican help. Together, it is possible to fix this. Apart, it is not.

Bottom line, says the CBO:

“To prevent debt from becoming unsupportable, policymakers will have to substantially restrain the growth of spending, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches.”

The longer we pretend otherwise, the worse the problem becomes.

– Jay Bookman