One of the things I missed last week during my downtime was the Congressional Budget Office (CBO) Budget and Economic Outlook report. I sort of find these reports fascinating because it seems like all the partisan newsmakers (politicians, think tankers, etc) rush to the slideshow, grab what they want, and continue to make the same points as before. The truth is, with reports like these, there’s something for everyone. I think that says more about the neutrality of the CBO than anything else (aside from whatever other faults it has).
Now let’s get on with the fun, shall we? The money chart (pun intended):
This always gets the headlines with the wonks – right and left. People post about the deficit shrinking if current law is kept (the “deficit shrinks if Congress does nothing” shtick), others post about the moral outrage that would be the Alternative Fiscal Scenario (even if most of what makes up that scenario includes polices they want continued). I don’t think people I speak to about “runaway spending” even know these kinds of projections exist. Yet being the deficit-relativist that I am, it’s way more interesting that they project it to shrink either way. –
Perhaps this chart is what makes me a quasi deficit-relativist. As you can see the federal government has run deficits as a percentage of GDP for most (excluding the Clinton years) of the last 40 years. All other things being equal, the deficit does not produce the kind of alarm in my mind that it does in others. I’m much more interested in what those other things are in the picture. You see, all other things being equal, in a perfect world we’d be running budget surpluses during periods of strong economic growth.
We should have been running surpluses between 2002-2008. It would have made things much simpler during/after that second great big grey bar (you know, the Great Recession). That’s what two wars, massive tax cuts, and a giant entitlement expansion will do for you – trying to utilize the government’s ability to offset massive economic downturns is a lot harder when you’ve spent all the good times in the red.
Which makes this graph very relevant:
The debt is going to go up. They might as well change the name from Alternative Fiscal Scenario to Most Probably Gonna Happen Scenario. Congress will patch the Alternative Minimum Tax, the “Doc-Fix,” and will very likely extend most of the Bush-era tax cuts. These are some of the things that are represented in my last graph:
Without some of those things I listed our yearly deficits as a percentage of GDP would be quite manageable, and leave us some room for dealing with the long-term debt. As far as I know, the baseline is shown as decreasing primarily due to a growing economy. Which means in the long term the single greatest contributor to our annual deficits will be…wait for it…the Bush-era tax cuts and the AMT.