Last week, Tea Party Patriots reported that the Congressional Budget Office’s (CBO) official projections for the Fiscal Year 2013 budget deficit were likely to be tens of billions of dollars off the mark, and not in the good way. That same day, CBO Director Douglas Elmendorf posted this devastating critique of Congress for its disastrous spending policies (emphasis added):
The federal budget deficit has fallen faster than we expected a few years ago, and projected deficits have been reduced relative to what we expected would occur if the policies in place at that time were continued. However, relative to the size of the economy, debt remains historically high and is on an upward trajectory in the second half of the coming decade.
The fundamental federal budgetary challenge has hardly been addressed: The largest federal programs are becoming much more expensive because of the retirement of the baby boomers and the rising costs of health care, so we need to cut back on those programs, increase tax revenue to pay for them, or take some combination of those actions. Those choices are difficult, and the decision as to when we should implement such changes is complicated by the negative effects they could have on the economy if they took effect while it is still fairly weak.
Washington, encouraged by entitled American voters, has not had the political courage to effectively reform Social Security, Medicare, Medicaid, food stamps, and other mandatory spending. While reform is necessary for the financial security of the nation, many Americans believe they deserve fully what they were implicitly promised by Social Security and Medicare because they have paid into the programs for decades. Others believe they deserve food stamps, Medicaid, and other federally-funded benefits because the programs allegedly “take care of” the poor.
This week’s CBO report on America’s long-term budget problems verifies the concern Elmendorf expressed just a week ago, and outlined potential consequences:
• Increased borrowing by the federal government would eventually reduce private investment in productive capital, because the portion of total savings used to buy government securities would not be available to finance private investment. The result would be a smaller stock of capital and lower output and income in the long run than would otherwise be the case. Despite those reductions, however, the continued growth of productivity would make real (inflation-adjusted) output and income per person higher in the future than they are now.
• Federal spending on interest payments would rise, thus requiring larger changes in tax and spending policies to achieve any chosen targets for budget deficits and debt.
• The government would have less flexibility to use tax and spending policies to respond to unexpected challenges, such as economic downturns or wars.
• The risk of a fiscal crisis—in which investors demanded very high interest rates to finance the government’s borrowing needs—would increase.
There’s no time left to waste. Congress must defund Obamacare, not raise the debt ceiling, and do its job to prevent financial collapse from becoming America’s reality.