President Obama's Deficit Problem

Posted: Jan 20, 2013 3:38 PM
Republicans are reportedly ready to vote to hike the debt ceiling without any of the major deficit-related concessions they've been pushing for from Democrats, and budget-watchers will soon turn their attention to the looming sequestration spending cuts (from the Budget Control Act, or BCA) scheculed to take place on March 1 and the expiration of the continuing resolution budget that the federal government has been operating on, scheduled to take place March 28.

Progressives, however, have been declaring the deficit problem "mostly solved." A report from the left-leaning Center on Budget and Policy Priorities found that, including all BCA cuts and the additional tax revenues from the January 1 fiscal cliff legislation, the U.S. is close to being on a stable ten-year budget path.

"Stable," in the CBPP's estimate, is keeping our debt-to-GDP ratio hovering in the 75% range. There are major assumptions that go into these projections, and the CBPP's ten-year chart intentionally skims over the longer-term problems that are set to face the country.

First off, the CBPP assumes that sequestration cuts are going to happen - and that's $1.4 trillion in spending cuts over the next ten years that fall about half on defense spending and half on nondefense discretionary spending. Portions of these cuts are opposed by both Democrats and Republicans on Capitol Hill. It's possible, though by no means likely, that the BCA is implemented in its entirety.

The CBPP also assumes that Medicare spending cuts put forth in Obamacare are going to work perfectly - namely, that lower spending targets are attainable and that the Independent Payment Advisory Board will both work properly and won't be overridden by Congress. The Congressional Budget Office estimated that Obamacare's Medicare cuts would total over $700 billion over the next ten years. While it would be nice if IPAB and the other spending reductions worked properly, the chances are low. The CBO's "Alternative Fiscal Scenario," the set of policies they deem most likely to happen, includes these Medicare cuts either failing or being overridden.

Finally, the CBPP's report only covers the next ten years, while the deficit crisis isn't going to truly hit the United States until the next decade. Progressives would have you believe that, because it seems far away, it's not really important to address. The CBO concludes otherwise: the cost of inaction gets heavier and heavier every day.

The Committee for a Responsible Federal Budget noted (hat tip: Reihan Salam) that it's important to extend the time horizon for deficit estimates further out, and that the CBPP's "goal" for stabilized debt isn't necessarily aggressive enough. Specifically, if projections for economic growth - which the CBO has been wrong on before - don't pan out, our debt and deficits will be a lot worse than what the CBPP is estimating.

Here's what the optimistic scenarios outlined from the CBPP might look like over an extended timeline, as put together by the CRFB:

The Congressional Budget Office will be releasing an updated long-term report in early February that will take into account the fiscal-cliff evasion bill passed on January 1, when we'll get a clearer picture of what the long-term budget outlook is. But contra the CBPP and various progressives, solving the long-term deficit isn't as easy as it looks.