How do we possibly get a grasp on the soaring federal deficit and debt? If we do nothing, a new report from the Congressional Budget Office warns, dire consequences would result:
“Federal debt would grow rapidly from its already high level, exceeding 90 percent of GDP in 2022. After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2026, and it would approach 200 percent in 2037.”
So how do we avoid that calamity? As a CBO graphic demonstrates, in some ways it’s not as complex as it might seem:
The extended baseline scenario — the declining green line to the right of the graphic — assumes that the Bush-era tax cuts and other tax cuts are allowed to expire on schedule, while “government spending on everything other than the major health care programs, Social Security, and interest — activities such as national defense and a wide variety of domestic programs — would decline to the lowest percentage of GDP since before World War II.”
It is, in other words, a combination of tax increases and spending cuts. If that approach is enacted, CBO predicts, “federal debt would gradually decline over the next 25 years—from an estimated 73 percent of GDP this year to 61 percent by 2022 and 53 percent by 2037.”
The second option — labeled “extended alternative financial scenario” — assumes that most current tax cuts, with the exception of Obama-era payroll-tax decreases, are made permanent. It also assumes that currently scheduled cuts in defense and discretionary spending are revoked. In other words, it assumes that we keep doing things the way it looks as though we will keep doing things.
In rough terms, those are our basic choices. Sure, you can adjust the ratio of spending cuts to tax increases, and you can play around with timing of tax increases and spending cuts to ease impact on the economy, but essentially, those remain the choices available.
However, when CBO Director Doug Elmendorf appeared before the House Budget Committee to explain the situation today, Committee Chairman Paul Ryan offered a third approach, his so-called “Path to Prosperity” plan.
As always, Ryan takes any talk of tax increases immediately off the table. Instead, he proposes tax-rate deductions that will benefit mainly the already wealthy. According to the Tax Policy Center, those changes would cut federal revenues by $418 billion in 2015 alone. Ryan has suggested that he could make up for those rate reductions by closing tax loopholes that he refuses to identify, but as we’ve already discussed, and as the Congressional Research Service has confirmed, that simply is not mathematically or politically feasible. By any definition, Ryan is proposing to slash the deficit by imposing significant new tax decreases.
To try to compensate, Ryan’s budget proposes to slash Medicare by 33 percent by 2050; Medicaid and CHIP — Children’s Health Insurance Program — by 75 percent; and total discretionary spending, including all government operations, to 3.5 percent of GDP.
That 3.5 percent figure includes defense spending, which Ryan magically proposes to increase while still meeting that target. As the CBO drily notes:
“By comparison, spending in this category has exceeded 8 percent of GDP in every year since World War II. Spending for defense alone has not been lower than 3 percent of GDP in any year during that period.”
That’s where we are. We face a serious problem. The problem can only be resolved through compromise and realism. But
House Republicans refuse to acknowledge either compromise or realism, and a good chunk of Senate Republicans are trapped in a similar delusion.
Therefore, no solution is possible.
– Jay Bookman