Since the Congressional Budget Office (CBO) released its latest projections on the national debt this past Tuesday, a chorus of voices has claimed our short-term and/or medium-term deficit problems are largely solved. Unfortunately, these voices are relying on unrealistic assumptions in the CBO’s report.
Whenever the CBO releases its budget projections, it includes a “baseline,” or “current law,” scenario. Current law assumes what is on the books will stay on the books. However, since this rarely happens, CBO created a “current policy,” or “alternative fiscal,” scenario, in which certain deficit reduction measures do not go into place. This includes certain spending reduction measures and tax increases – one prominent example is the so-called “Doc Fix,” which includes Medicare cuts that have been postponed by Congress for a decade.
Too often, media voices focus exclusively on the CBO’s current law scenario, to the great miseducation of the public. This is not new, but it is something that needs to be corrected. Below are fact-checks of four different analyses at three different prominent organizations.
Over at The New York Times, Annie Lowery writes that CBO projected the following:
…[T]he deficit, which topped 10 percent of gross domestic product in 2009, could shrink to as little as 2.1 percent of gross domestic product by 2015 — a level that most analysts say would be easily sustainable over the long run — before beginning to climb gradually through the rest of the decade.”
On the whole, Lowery’s article is pretty balanced. However, she relies entirely on the CBO’s “current law” scenario for her assessment of the next decade’s projected spending. In fact, the CBO’s “current policy” scenario – which is far more politically realistic – projects the following:
Relative to the baseline projections for 2014 to 2023, deficits would rise by a total of $2.4 trillion (including debt-service costs) to yield cumulative deficits of $8.8 trillion. Debt held by the public would reach 83 percent of GDP by the end of 2023, the largest share since 1948.
In other words, the “gradual climb” Lowery reports is not very gradual at all. Additionally, she failed to note the CBO expects the debt levels to be debilitating after the end of the next decade.
While Lowery’s article may have been somewhat inaccurate, it at least represented most of the realities surrounding the report. Media Matters’ Albert Kleine, however, did not:
The continued focus on deficit reduction is particularly interesting given the fact that, in the month of April, the federal government posted the largest budget surplus in five years. Furthermore, according to the Congressional Budget Office, current and projected deficits are expected to decline in coming years.
Kleine, relies on a Huffington Post article about the CBO’s February debt projections. Like Lowery, he uses current law projections – which, as Tea Party Patriots reported at the time, are more realistic and expect $2.5 trillion more in debt to arrive over the next decade as compared to the current law scenario. Since “coming years” is never defined – it is interesting he chose that terminology – since the CBO’s new report projects deficits and the debt to rise dramatically in the vast majority of “coming years” for the next two to three generations.
Similarly, Ellie Sandmeyer of Media Matters neglected a great deal of reality when she wrote:
In a May 14 report, the non-partisan CBO estimated that in 2013, the federal deficit will be $200 billion lower than previously projected, the smallest deficit since 2008. The report also predicted that the deficit over the next 10 years will be $618 billion less than previously thought.
Sandmeyer uses her first point to argue that deficit reduction of $618 billion is a lot. And on the surface, it is. However, she relies on the same “current law” scenario as Lowery, which as stated above is unrealistic. Furthermore, $618 billion is less than 10% of the CBO’s projected deficits of $6.34 trillion over 10 years.
That’s $6.34 trillion in addition to existing levels of publicly held debt. Which are nearly $12 trillion. Never mind debt not held by the public, which is trillions more.
Sandmeyer also claimed:
Additionally, data from the Bureau of Economic Analysis show that austerity has led to a decline in government spending, which has turned into a drag on economic growth.
This factually challenged representation of reality was refuted in February by Just Facts – the BEA only looks at 31% of total federal spending in this analysis. So Sandmeyer is definitely relying on incomplete data for her claim. Furthermore, if she looked back at the CBO’s February analysis on future economic growth, modest deficit reduction actually helps economic growth more in the long-run than does higher spending. (She should have read Tea Party Patriots’ post on the matter.)
Finally, James Pethokoukis of the American Enterprise Institute made the same error he did last week in relying on CBO’s current law projections instead of the more realistic current policy scenario for the following claim:
From 2015 through 2018, CBO sees annual budget deficits of just 2.4% of GDP, right at the 40-year average before the Great Recession.
This assumes a great deal about projections related to military spending, sequestration, Medicare payment cuts, and tax increases that are very unlikely to take place.
Fortunately, Pethokoukis is not ignorant of the long-term threat facing the country. From the close of his post:
We’ve merely managed to stabilize the problem at the historically high level of over 70% of GDP versus the 39% average of the previous four decades. Also, note that CBO projects government’s net interest spending will more than double as a share of GDP in the coming decade—from 1.4% in 2014 to 3.2% in 2023, a percentage that has been exceeded only once in the past 50 years.
And once we get past the the ten-year budget widow depicted in the charts, the deficits likely continue to widen as entitlement spending keeps increasing. Washington’s priority should be to reform entitlements and look for smart, pro-growth ways to reform taxes, immigration, education, and public investment. Growth, growth, growth!
Unfortunately, the odds are against Pethokoukis’ wish for accelerated growth, since America’s debt is now at a level that may slow economic growth by about 1% per year. With an economy $16 trillion in size and (slowly) growing, 1% less growth per year is $160 billion in 2013 – slightly under $1,600 per American household this year.
Which means another claim by Media Matters – that the national debt is not a problem right now – is completely false.