CBO Projects $2.4 Trillion in Debt – And They’re Underselling It

Posted: May 05, 2018 12:01 AM
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CBO Projects $2.4 Trillion in Debt – And They’re Underselling It

The long-awaited 2018 edition of the Congressional Budget Office’s (CBO) Budget and Economic Outlook was released this month. It does not paint a rosy picture of the nation’s fiscal future, projecting $12.4 trillion in additional debt over the next decade. If past estimates are any indicator, however, that doesn’t reflect reality. Without a substantial change to the culture of overspending in Washington, the country’s fiscal situation is likely even worse. 

Ten years ago, CBO estimated that Congress would run a $151 billion surplus this past fiscal year. Instead, the country ran a $665 billion deficit. That’s in part because CBO conducts its analysis based on “current policy,” whereby lots of expensive provisions expire, making the long-term fiscal situation look better than it is likely to be. The economic crisis also bears some blame for the disparity, of course, but by 2009, with the stimulus law already passed, CBO still projected a FY 2017 deficit of “only” $234 billion.

From 2017 to 2018, CBO’s estimate of debt accumulation over the next decade has increased from $9.4 trillion to $11.7 trillion. Some would be eager to place the blame squarely on the tax reform law for this disparity, but that would be a mistake. CBO’s 2018 estimate of revenues has dropped by approximately $1 trillion relative to its 2017 estimate, but its 2018 estimate of spending over the next ten years has also increased by around $1 trillion compared to 2017. Even after taking into account likely extensions of current policy, the tax reform law will raise the nation’s debt-to-GDP ratio by 2027 from 111 percent to 114 percent.

CBO’s estimates also frequently fall victim to members of Congress “legislating to the score.” Because CBO scores the fiscal impact of legislation over a ten-year period, Congress often games the system to ensure that the ten-year score appears lower than it is.

One example of this is so-called “tax extenders.” Each year, Congress reauthorizes the same set of tax breaks to last another year or two, rarely eliminating or making permanent any of them. The tax breaks are effectively permanent, and should show a ten-year budget impact of well over $100 billion. Yet because taxes are technically “temporary,” they score out to $10 billion, reflecting only one more year’s worth after which they are assumed to expire. 

Another example of this practice of legislating to the score will have a far greater budgetary impact. The recent Bipartisan Budget Act (BBA) technically only “delayed” the caps on spending put in place under the Budget Control Act of 2011, even though the reality is that the caps are very unlikely to return. As a result, the CBO scored the BBA as “only” adding $320 billion to the debt over the next ten years (itself a significant spending increase), not accounting for additional spending that is virtually certain to occur.

The National Taxpayers Union Foundation’s Demian Brady analyzed the impact of the BBA on the debt, accounting for this and other gimmicks. He found that the real cost of the BBA to taxpayers was $1.66 trillion, five times more than estimated. Unfortunately, such tactics to mislead the public into thinking Congress is spending less than it is are par for the course in Washington.

A number like $12.4 trillion in added debt is a significant and daunting figure. It represents a more than 50 percent increase to the current national debt, which has already blown past $21 trillion. But taxpayers should be aware that it likely does not give the full picture, as budget gimmicks and the inevitable spending increases that each year brings will likely drive that number up even further. This may be the current policy baseline, but Congress’s current policy is to spend profligately whenever it pleases.