CBO: In the Long Run, Obama's Budget Plan Would Make the Economy Worse

In the long run, the President’s budget proposal would make the economy worse relative to the current budget baseline, according to a new report from the Congressional Budget Office. The White House and its allies will no doubt seize on the CBO’s estimate that next year economic output would be between 0.6 and 3.2 percent under the president’s framework.

But I suspect the administration will be less keen to note that later on in the next decade, between 2018 and 2022 (at which point the country’s total economic output is expected to have surged past the $20 trillion mark), the country’s overall economic output would be between 0.5 and 2.2 percent lower than under the baseline scenario. Artificial economic boosts, fueled by debt, can juice economic output in the short term. But there are real economic costs in the long run.

Now, it’s true that CBO is comparing the president’s budget framework to the current budget baseline, which unrealistically assumes that many of today's policies stay unchanged and are enacted in full. Specifically it assumes that Medicare payments take a huge drop, the Bush tax cuts expire for everyone, and the Alternative Minimum Tax goes unchanged, hitting more and more middle class earners.

You can take this as evidence that policymakers ought to simply let this scenario play out, letting tax rates rise on everyone. But what it mostly tells us is that we need to close the fiscal gap sooner rather than later, and that finding ways to reduce the size of the federal government’s budget deficits quickly pays off substantially over time.

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  • Tman||

    CBO: In the Long Run, Obama Budget Plan Would Make the Economy Worse

    Too easy.

  • A Serious Man||

    Hold on, let me find my shocked face.

  • o3||

    here ya go sport

    *ziippppppp*

  • Fat Man & Little Boy||

    Unbelievable! How do you manage to pee out of that little thing?

  • Paul.||

    In the long run, we're all dead.

  • Doctor Whom||

    In the long run, we're all dead Obama will be sitting pretty as an ex-president.

    Please stick to what matters to whose who matter.

  • Doctor Whom||

    *those

  • Paul.||

    Eliminationist rhetoric!

  • sarcasmic||

    alt-text FTW!

  • kinnath||

    Chuck Chuck bo buck . . .

  • ||

    Honestly, Suderman, you've put so many of these type of posts up the last two or three years I wouldn't know the diff if you just copied an old one and put it up.

    Not that it's any less true, though.

  • R C Dean||

    Its axiomatic that borrowing now causes economic damage later. Any budget that spends/borrows more will cause more damage later than the alternative.

    Debt is nothing more than pulling future demand to the present. Demand creation in the present by borrowing causes even more demand destruction in the future, when the bill comes due.

    Rather than saving a year to buy a car, you borrow to buy it now. You have pulled your demand for the car from next year to this year. However, if you borrow $10,000 to buy that car at 10% interest, that means you have created $10,000 in demand today, but when you pay your car off next year, with interest, you will be parting with $11,000 that you could have spent on something else. Thus, creation of $10,000 in demand this year destroys $11,000 in demand next year.

  • mr simple||

    That's not necessarily true. There are many situations where borrowing money will allow a person to buy, build, or invest in something that will increase the person's income, or st least allow the person not to lose their current income. So while your scenario may be true in certain, static situations, it's not axiomatic.

  • R C Dean||

    Fair enough. I was thinking of that after I posted.

    Sure, you can borrow to invest in a productive asset, and come out ahead in the long run. Businesses do that all the time.

    Any time you borrow for consumption, though, my scenario holds.

    And I'm pretty confident that the borrowing the government does isn't for economically productive assets. As applied to the government, I'll say that it is axiomatic.

  • T||

    There are many situations where borrowing money will allow a person to buy, build, or invest in something that will increase the person's income

    So much federal spending falls into thsi caetgory, doesn't it?

  • wareagle||

    is it just me or does the CBO always release this sort of report on Fridays?

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