Debt and Taxes: The CBO's Dire Projections

Peter Suderman | June 29, 2009

How bad is the CBO's latest report on the country's budgetary future? The Washington Post calls the office's numbers "dire." U.S. News says they're "off the wall." And in a post about the report on his blog, the CBO's director, Douglas Elmendorf, writes that "under current law, the federal budget is on an unsustainable path." 

What's the problem? In a word, debt: The Post's editorial board summarizes the CBO's findings as follows:

Debt is growing faster than gross domestic product. Under the CBO's most realistic scenario, the publicly held debt of the U.S. government will reach 82 percent of GDP by 2019 -- roughly double what it was in 2008. By 2026, spiraling interest payments would push the debt above its all-time peak (set just after World War II) of 113 percent of GDP. It would reach 200 percent of GDP in 2038.

Elmendorf writes that, in order to prevent "substantial harm to the economy," there are only two options available: spending cuts or tax hikes — and whatever we do, we have to do it soon. From his blog entry:

Keeping deficits and debt from reaching levels that could cause substantial harm to the economy would require increasing revenues significantly as a percentage of gross domestic product (GDP), decreasing projected spending sharply, or some combination of the two. Making such changes sooner rather than later would lessen the risks that current fiscal policy poses to the economy.  Although the policy choices that will be necessary are difficult, CBO’s long-term budget projections make clear that doing nothing is not an option: Legislation must ultimately be adopted that raises revenue or reduces spending or both. Moreover, delaying action simply exacerbates the challenge...

Comments

Invisible Finger|6.29.09 @ 4:29PM|#

This guy need to get with the program: Green shoots, not red shits.

Paul|6.29.09 @ 4:29PM|#

But Nancy Pelosi likened the CBO's projections to that of the IPCC summary reports: Always picking the most dire outcomes. Who do we believe?

Naga Sadow|6.29.09 @ 4:29PM|#

I'm sure that spending multiplier will kick in long before the situation becomes a real problem. Carry on sheeple.

The Angry Optimist|6.29.09 @ 4:33PM|#

Clearly, the CBO is not taking its RDA of Hope&Change. If you take enough Hope, fiscal realities will go away. It's kinda like booze.

Sean W. Malone|6.29.09 @ 4:36PM|#

The problem, Naga, is that the "multiplier" is in fact a negative number.

|6.29.09 @ 4:40PM|#

Pay no attention to the man behind the curtain!

Xeones|6.29.09 @ 4:40PM|#

God, i can't wait to see Obama and Congress get pounded in the ass by reality.

Peter|6.29.09 @ 4:42PM|#

But Nancy Pelosi likened...

Fixed.

Rich|6.29.09 @ 4:42PM|#

> Legislation must ultimately be adopted that raises revenue or reduces spending or both. Moreover, delaying action simply exacerbates the challenge...

This is exactly the administration's position, isn't it?

|6.29.09 @ 4:44PM|#

God, i can't wait to see Obama and Congress America get pounded in the ass by reality.

You can be confident that the Powers That Be will do just fine, not matter how much a pounding the rest of us take.

I wonder how much these numbers accelerate if you factor in another trillion for socialized medicine and the drag on the tax base created by cap 'n' trade?

Brett Stevens|6.29.09 @ 4:47PM|#

How about spending cuts? There are plenty of government programs that are useless in my eyes, starting with anti-drug education, affirmative action, HUD, and endless regulatory bureaucracies that do not seem very effective.

I know GWB is not liked by most Americans, but his idea of privatizing certain services instead of allowing them to remain in hidebound bureaucracy seems good to me.

Paul|6.29.09 @ 4:54PM|#

There are plenty of government programs that are useless in my eyes, starting with anti-drug education, affirmative action, HUD, and endless regulatory bureaucracies that do not seem very effective.

someone didn't get the memo.

This is Hope&Change. That means government will be "strengthening its regulatory regime" meaning not only will the old institutions stay, they'll be expanded and new ones created altogether.

Anti-drug education? See expanded healthcare and said reforms. You're about to see every problem in America turned into a public health problem. However, even I will admit this has been going on since Clinton.

Do away with the HUD? This is Obama we're talking about. HUD will become a muscle-bound green monster that you wouldn't like very much when angered.

No Name Guy|6.29.09 @ 5:03PM|#

"...CBO's long-term budget projections make clear that doing nothing is not an option..."

Isn't this Congress' standard M.O. - do nothing? I can't vote against any popular programs - that'll jeopardize my abilty to get elected.

But hey, at least The Children will have Hope & Change to go with that meager dinner in 5 or 10 years when the fiscal train wreck in progress climaxes.

|6.29.09 @ 5:17PM|#

How about trimming the trillion dollar plus empire building/weapons systems stockpiling/global surveillance budget? If one is not prepared to ruthlessly pare the pentagon, one is not serious about getting the debt under control.

Now we'll hear from the chorus of rent seekers and their factotums whining that civilization itself will be destroyed if the United States does not maintain its empire and outspending the rest of the world on war.

|6.29.09 @ 5:21PM|#

Things to do ASAP.

1. Sell US Treasury bonds.

2. Exchange US dollars for a better store of value.

|6.29.09 @ 5:28PM|#

Elmendorf writes that, in order to prevent "substantial harm to the economy," there are only two options available: spending cuts or tax hikes.

There's also the third option, which we have been using recently to close the gap between spending and taxes:

Print up more money and spend it, via the purchase of Treasury securities by the Fed.

Hey, it worked for Germany from 1919 to 1923.

B|6.29.09 @ 5:31PM|#

Christ, what do you fucking expect when the country is run by a group of imbeciles who thought they were actually accomplishing something when they announced they had "found a way" to get the cost of healthcare "reform" down to "only" $1 Trillion? Can't let the impending bankruptcy of the US get in the way of buying votes, can we?
We have a worthless piece of shit in office now who is so fiscally reckless, he makes Bush look like Ebenezer fucking Scrooge, pre-reform.

The Angry Optimist|6.29.09 @ 5:31PM|#

LM - you're trolling the wrong board, Sonny Jim. I doubt anyone here advocates a continued budget of 600 billion for the Pentagon. On the other hand, you need to consider that that amount is absolutely dwarfed by the Social Security Administration and the Treasury Department (for servicing the Debt), so please adjust your insanity accordingly.

|6.29.09 @ 5:49PM|#

TAO, just what is insane about my post? Your assertion that my post is "insanity" is downright frivolous.

Furthermore, you introduce one mighty big red herring-the proposition that I ignore other forms of government spending. That is just laughable and, alone, proves that your asertion above is frivoulous.

|6.29.09 @ 5:49PM|#

The bright side of this is that in a few years, I may be able to exchange my Zimbabwean Dollars for US Dollars at par.

;P

Gilbert Martin|6.29.09 @ 5:50PM|#

"On the other hand, you need to consider that that amount is absolutely dwarfed by the Social Security Administration "

Indeed the spending on Social Security and Medicare far outstrips military spending. And unlike discretionary military spending, entitlement programs are on automatic pilot to increase forever.

|6.29.09 @ 5:52PM|#

TAO-

Besides, the United States spends far more than 600 billion on military/security/war on terror.

In the immortal words of Jim Calhoun, "get your facts straight and come back and see me."

B|6.29.09 @ 5:56PM|#

"Besides, the United States spends far more than 600 billion on military/security/war on terror."

Far more? For someone who is so insistent on individuals getting their facts straight, one would have thought you would have provided some sort of citation for the above claim.

Mad Max|6.29.09 @ 5:56PM|#

OMG, this is awful! Why didn't someone warn us?

I mean, someone who didn't publish offensive newsletters in the 1980s.

The Angry Optimist|6.29.09 @ 6:06PM|#

LM - again, adjust accordingly. I know you think it's fun and cool and sexy to join all the cool kids and talk about American Empire and shit, but really, enough is enough. Time to grow up now.

I never said you ignore the other kinds of spending, LM, just that you're trolling the wrong board and shouting "Wolf" too many times. We get it, ok, kid, you don't like too much military spending. Neither do we. Now, you can either realize that the USG has 53 trillion in unfunded liabilities coming up *and* has a 12 trillion dollar debt, or you can keep going on about American Empire.

Your choice. you only have so many hours in the day.

|6.29.09 @ 6:07PM|#

B-

As a limite government/libertarian, should not one first shout down any person who defends the empire/national security/national surveillance state mindset?

As for a citation, pleas see:

1. Chris Hedges, GLobalResearch.ca June 16, 2009, "The profligate spending on the military, some $1 trillion when everything is counted, will be unsustainable."

John Thacker|6.29.09 @ 6:10PM|#

Besides, the United States spends far more than 600 billion on military/security/war on terror.

Really? You have a better source than the CBO budget data? Check Tab F-7 on the spreadsheet. Defense discretionary outlays, 2008: $612.4 billion.

However, I will note, that it's not exactly true right now that

Indeed the spending on Social Security and Medicare far outstrips military spending

unless you're parse it as the spending combined, as the spending on each is in the same neighborhood as defense. Check Tab F-9. Social Security spending is $612.1 billion, almost exactly the same as defense. Medicare is $456.0 billion, Medicaid another $201.4 billion.

However, Social Security and Medicare are the ones projected to be enormous in the future. Defense has been cut significantly in the recent past as well, on a scale far greater than Social Security and Medicare cuts.

Of course, Peter Orszag and others in the Obama Administration agree that Medicare and Medicaid need to be cut, they just don't want to talk about it too loudly to voters.

|6.29.09 @ 6:12PM|#

TAO, what is your point? Given the debt, does it not make sense to drastically reduce such spending. Why waste time trying to find fault with a limited government advocate who is critical of military/empire spending?

Of course, let's drastically reduce entitlement spending as well.

Sean W. Malone|6.29.09 @ 6:18PM|#

Look everybody... let us not fight... LM, no one here disagrees that military spending is out of control. TAO, social security, debt spending and medicare are even more out of control but at least they don't... directly... get people killed.

Now hug and make up.

|6.29.09 @ 6:22PM|#

B and John Thacker-

Are we forgetting that the outlays for the Iraq and Afghanistan adventures in empire building are off budget?

John, since when is a communist alphabet soup bureaucracy some kind of authoritative source that is to be trusted by limited government advocates?

|6.29.09 @ 6:22PM|#

TAO, if I can hug and make up with Joe......

Paul|6.29.09 @ 6:28PM|#

LibertyMike:

The only issue I have with your thesis is, historically, Military spending is the easiest thing to cut. It's the entitlement spending that's the bitch. Look at it this way:

A little over a decade ago, the U.S. Treasury was worried about a new type of counterfeiting. Previously, the problem was one individual printing tens, hundreds of thousands or millions of dollars. One source, one investigation.

But with the proliferation of quality in-home digital imaging equipment available to every fannypack-clad shopper at Best Buy, the new worry was thousands of people counterfeiting a $1, or a $5 bill. Thousands of sources, thousands of investigations. Distributed crime, if you will. Where am I going with this? Here comes:

The military is usually the easiest thing to cut because it's a single source funding mechanism whose need changes from time to time with world events. But entitlement spending is the bitch, because you don't cut Medicare, you're cutting benefits to millions of tax-paying citizens. In essence, any attempt to entitlement spending dies the death of a thousand cuts. Always politically unpopular.

The Angry Optimist|6.29.09 @ 6:30PM|#

not that I am trying to pick a fight, but I just tire of the trite "American Empire" criticism and all of its accoutrements.

|6.29.09 @ 6:48PM|#

Paul-

Agreed that cutting/slashing entitlements is not an easy proposition. Other than Ron Paul, how many congressional critters have barnstormed on the idea of "let's slash social security and medicare?"

TAO-

1.Do you think, from all that you have read from me, that I am the type of person who wants, much less craves, to be "in" with the "cool kids" or with what is "sexy" or the trendy, cool people?

2. Why does the talk of empire bother you? Is it because it is without evidentiary support? Is it because you don't like the people who usually discuss it?

|6.29.09 @ 7:03PM|#

Are we forgetting that the outlays for the Iraq and Afghanistan adventures in empire building are off budget?

No, it's just that you apparently have an unclear understanding of what that means. Not being included in the main defense spending bill in the budgetary process and appropriated by supplementary and "emergency" bills does not mean that when the CBO and the Dept. of the Treasury tallies up the money that was actually spent that the money doesn't appear. After all, it still gets appropriated, and it still requires debt to be issued. It just means that the "budget" proposed by the President and approved by Congress doesn't include it, it gets added later.

To take an example, all the TARP spending was "off-budget" in that it was emergency appropriations. Yet it certainly appears in the CBO Monthly Budget updates.

since when is a communist alphabet soup bureaucracy some kind of authoritative source that is to be trusted by limited government advocates?

I should think that the Dept. of Treasury knows how much debt it had to issue. In any case, this entire original post relied on CBO projections. The CBO is much more reliable than the OMB; it also is the agency that has produced damning estimates of the Kennedy-Dodd health care bills, among others. So yes, I trust them on this.

|6.29.09 @ 7:04PM|#

If I were to cite the budget as proposed by GWB or passed by Congress for indications of the defense spending, yes, that would be incomplete because of the supplementary bills. But quoting the CBO Historical Budget Data is no problem, as it includes those values.

Sean W. Malone|6.29.09 @ 7:09PM|#

I must confess, I too tire of the American empire talk... mostly because though we are a de facto empire, I honestly don't think that we set out to become that, and also because the people who talk about it ad nauseum are usually retarded.

The Angry Optimist|6.29.09 @ 7:19PM|#

2. Why does the talk of empire bother you? Is it because it is without evidentiary support? Is it because you don't like the people who usually discuss it?

Because it's outmoded, outdated thinking, for one. For two, because if the United States is an empire, it's the crappiest, most benign empire ever to have existed (excepting the Holy Roman Empire, which doesn't even really qualify for the name). Three, yes, people who usually say silly shit like American Empire are either empty-headed leftists, Rockwellians or Buchananites, or some bizarre combination of Alex Jones and George Nory.

Look, "empire" and "imperialism" to describe the United States are overused and abused terms. They're incoherent and do nothing more than spawn endless squabbles. If you wanted to be accurate (and what irks me is that I don't think you do) you could talk about American hegemony, which nobody seriously argues doesn't (still) exist, but oh no, you've just gotta raid the Noam Chomsky/Howard Zinn treasury and claim "EMPIRE".

Sean W. Malone|6.29.09 @ 7:41PM|#

TAO FTW for the George Nory ref... Well done sir.

Also, agreed. Hegemony is the correct term, Empire is not.

Sean W. Malone|6.29.09 @ 7:58PM|#

And honestly... I kinda wish we actually had an empire, for what we're spending on our military! AT least that way we'd be getting tithes from our subordinate nations, and I could travel most places in the world with impunity and even an air of superiority... Good times.

|6.29.09 @ 9:01PM|#

"...CBO's long-term budget projections make clear that doing nothing is not an option..."

Oh, I'm sure Congress and Obama are going to do something. Unfortunately, it's almost certainly going to have worse results than doing nothing...

|6.30.09 @ 7:56AM|#

Taxes are going to go up. Way up.

And why not? As Obama's cabinet well demonstrates, taxes are only for the little people.

|6.30.09 @ 8:06AM|#

LM - Go pull a copy of the budget. Even before the Cap and Trade, TARP, Government takeover of healthcare and finance, Military spending was less then 20% of the budget. It is in fact the only consitutional responsibility the Fed really has. Even if you stopped spending immediately and sold every bullet off to the Chavesitas, you wouldnt make a dent in the massive debt and long term liabilities we are accumulating. Pick another horse if you want to be credible.

|6.30.09 @ 8:22AM|#

You would be surprised at how quickly and effectively we could rescue our country. Instead of beating the institutionalized corruption that is our congress at their own game, just change the game. I recommend reading the Bill of Federalism being promoted by law professor Randy Barnett. It is doable and has more promise than you can imagine. Just google "federalism amendment."

edward gormican|6.30.09 @ 8:56AM|#

Why is everyone whining about this administration? Sixty seven million voters voted for this illeterate jackass born in Kenya and cut his eye teeth on Chicago politics, where if your not a liar and thief you don't get to participate in looting the treasuary. The American people spoke. Learn to live with it.

|6.30.09 @ 9:55AM|#

Did the CBO take into account the 18 million Obama plucked so valiantly from his budget with his fine toothed comb? They'd better recompute.

|6.30.09 @ 10:05AM|#

The math is this simple.

When I was a kid in the late 50s, one person in 19 worked for the non-military government at any level.

Now the number is one in just over five. Now, a government worker's salary, including withheld taxes, comes out of tax revenue. So, if each of the four productive workers pays 25% in taxes, the government worker's salary is covered but with no money left to fix a pothole much less build an aircraft carrier.

Bottom line: Having 5% of people work in government is a lot more sustainable than having 20% work in government. The fierce moral urgency of smaller government!

|6.30.09 @ 10:13AM|#

I'm cool with cutting military spending, myself. I'm getting impatient with our operation in Afghanistan...we've been there for damn near eight years and we're still no closer to defeaating the goddamn Talibs than we were when we started. We ought to either get serious or get out.

But yes, that big round-robin purse-snatch called "entitlements" is the elephant in the elephant-and-hamster stew. If we can't cut that, we're hosed no matter what we do with defense.

|6.30.09 @ 10:45AM|#

I'm curious how this all plays out? Revolution? I mean, there's just no way people are going to stand for the kind of taxation AND reduction in benefits that will be required to pay for every liability we have ensnared ourselves with. Either an effective stopper will have to come out of the bullpen to save the day or the fans are gonna charge the field.

|6.30.09 @ 12:50PM|#

How bout selling land? The Feds have over 600 million acres of it. Selling land generates revenue and reduces ongoing operating costs. Selling land would provide private property opportunities to the citizens of this republic, some of which would generate taxable revenues off such land, not to mention property taxes to states and munis.

|6.30.09 @ 12:54PM|#

I can hardly wait. Once DC utterly destroys the national economy, people may decide to give freedom another chance.

|6.30.09 @ 4:04PM|#

Don't underestimate the ability of massive currency overproduction to inflate our way out of debt. When a candy bar costs a billion dollars, we will be able to pay our national debt with a few thousand Butterfingers.

It seems with the massive currency inflation and attempt to socialize the health care industry, destroying the American monetary system really doesn't bother statists, who will be there offering handouts when it all hits the fan, and creating a populace in thrall do the scraps they provide.