Budget Deficit

5 Takeaways from the CBO's Latest Budget Report

Lower deficits for now, but debt remains on an unsustainable path.

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credit: theimpulsivebuy / Foter / CC BY-SA

The Congressional Budget Office, Capitol Hill's nonpartisan budgetary scorekeeper, released a big report on the state of the budget and the direction it's heading. There's some good news—lower deficits—but there are also signs of serious trouble ahead, with total debt levels remaining on an unsustainable path.

The annual deficit for 2015 will be the smallest since President Obama took office. At $426 billion, the annual deficit is down again this year, dropping by $59 billion from last year's total, and hitting the lowest level its been since 2007. While that's still a pretty big number in raw terms, relative to the size of the economy, it's not; at about 2.4 percent of GDP, the CBO says, it's smaller than the typical deficit over the last five decades.

Tax revenues are up. The CBO says that federal revenue from taxes will jump 8 percent in 2015, to about $3.3 trillion. That means that roughly 18.2 percent of the economy will be diverted to the government this year. But even with rising revenue and lower deficits, there's still budget trouble ahead.

Total national debt levels remain on an unsustainable path. The CBO has been saying this for a while now, but its worth reiterating, especially given news that the deficit is down again this year. Despite increased revenues and a low annual deficit, we're not out of the woods: The debt is growing faster than can ultimately be supported. As CBO Director Keith Hall said, "The growth in debt is not sustainable. At some point, it's going to get to a very high level. Obviously, you can't predict tipping points, but at some point this becomes a problem." In other words, the budget is heading for some kind of crisis, and the question isn't if, but when.

After years of slower growth, Medicare and Medicaid are growing more rapidly again. Following news earlier this year that national health spending growth had started to quicken once again, the CBO estimates that major health programs—mostly Medicare, Medicaid, and Obamacare—will cost 13 percent more this year than last, adding up to about a $106 billion difference. The biggest contributor to the boom in federal health care spending? Medicaid, which, will cost $49 billion more this year, a year-over-year increase of about 16 percent, thanks largely to the expansion of Medicaid coverage under Obamacare.

The new CBO director, appointed by Republicans, doesn't believe that tax cuts "pay for themselves."

This isn't strictly part of the report, but it's still notable. During a press briefing, CBO Director Hall, who was appointed earlier this year amid GOP-led discussions about whether the CBO should adopt dynamic scoring, which attempts to estimate whether tax cuts have economic feedback effects that can result in the replacement of lost revenue to the government, Hall said that, as far as he and the CBO are concerned, tax cuts don't spur enough economic activity to replace lost revenue. No, the evidence is that tax cuts do not pay for themselves," Hall said, according to The Hill. "And our models that we're doing, our macroeconomic effects, show that." Sorry, Republicans—if you want to cut taxes without hiking the deficit, you'll have to cut spending too. 

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  1. I played my NPR game yesterday where I flipped to it for a few seconds. The upshot was this was good news for Democrats, because we’re only $400,000,000,000 a month short on our $18,000,000,000,000 debt, so that’s proof we’re not spending too much.

    Yes, literally. Not a joke. They said that.

  2. At $426 billion, the annual deficit is down again this year, dropping by $59 billion from last year’s total, and hitting the lowest level its been since 2007.

    Of course, this is utter horseshit. We have no idea what the total deficit really is, because the Treasury has gaming the living fuck out of their books. They don’t show any increase in debt for months and months now. But last year, the debt increased by, again, over $1tt.

    I know there’s a difference between the “deficit” and the increase in debt, but given the utter corruption of our government’s fiscal management, I don’t see anybody can say anything about how much we are outspending our revenues with any degree of confidence.

    1. http://www.cnsnews.com/news/ar…..2975000000

      No increase in debt since March 16 due to “extraordinary measures” needed to keep from being caught violating the debt limit.

      1. $18,112,975,000,000 is about $25 million below the current legal debt limit of $18,113,000,080,959.35.

        By “legal limit”, they mean what a group of guys with poly-sci degrees decided it would be based on whatever constituency they could garner for a vote.

        1. And the 25 mil is just a made up number they pulled out of a fake spreadsheet so they could “verify” that they are under the legal limit.

          1. seems legit

            1. “When you’re on crack, everything seems legit…”

            2. You’d make a great IG, Almanian.

              1. I’ll make a better Predident

                Almanian for President – 2016
                I Probably Won’t Make It Any Worse

                And I definitely won’t spend any money…I’M NOT THE CONGRES!!

                1. I will not make a better Engrish* teacher…”President”

                  *yes

      2. Obama taking a multi-week vacation probably adds a good 25 million to the debt. What a bunch of horseshit.

        Meanwhile, ignore all the state debt and those unfunded liabilities.

    2. Even if we were underspending our revenues by a considerable margin, it would probably take decades to get to Reagan-esque levels of debt.

      1. What about Van Buren-esque levels of debt? How long will that take?

        1. How about Andrew Jackson-esque level of debt?

          Which was zero.

          1. Did he get it to zero? I thought it bottomed out at $27K. Which is more like $2.7M in today dollars.

            1. Did he get it to zero? I thought it bottomed out at $27K

              Depends on whether you consider “paid off” to be valid only at the end of the year, or if actually hitting zero counts. It did get down to zero briefly in January 1835 (was announced in Congress), but by the end of the year some debt had been incurred.

    3. The government does use cash basis accounting?

    4. The federal government keeps it books in a manner that would get a publicly traded corporation indicted for fraud if it did the same thing.

      It does not use Generally Accepted Accounting Principles which requires accrual accounting.

      The REAL debt includes the trillions of unfunded liabilities for Social Security, Medicare and Medicaid.

      1. The REAL debt includes the trillions of unfunded liabilities for Social Security, Medicare and Medicaid.

        Those aren’t liabilities. Social Security, Medicare, and Medicaid are entitlement programs, not debts owed.

        People believe that it is “their” money they are receiving in SS payments, but they are mistaken about that. It is just another welfare check from the government.

        1. Anything a constituency is promised, then is going to demand should still be considered debt. Yes, the government could default on everyone’s SS payments, and nudge its own courts to declare those entitlements invalid.

          Democracy can be funny that way. Like LOL funny.

          1. Anything a constituency is promised, then is going to demand should still be considered debt.

            Social Security recipients are (a) richer and (b) less numerous than the people being taxed to pay for Social Security.

            They can “demand” all they want. Voters are not going to double their taxes so that people who own their own houses and have no children to support can enjoy twenty-year retirements at their expense.

            1. Voters don’t get a say in the matter.

              Voters get, basically, one vote every four years to represent everything the government can do. Which is to say, no choice.

            2. Voters are not going to double their taxes so that people who own their own houses and have no children to support can enjoy twenty-year retirements at their expense.

              Is there this large group of people who managed to evade making SS payments but yet qualify for SS benefits? You know that SS benefits are capped and based upon lifetime contributions, with those who paid at the lower end of the scale receiving more than they paid in sooner after retirement, right?

              1. All SocSec payments are made out of current tax collections or debt issuances.

                The amount may vary based on your history, but the money you take this year is money that was taken this year from somebody else.

                I don’t think its inaccurate, at all, to say that all SocSec beneficiaries are living at someone else’s expense. That money didn’t come out of their savings account, or any savings account to which they contributed.

                The paid taxes in. That’s done. That money was spent long ago. Now they are taking taxes out. Taxes that were collected this year.

            3. To my horror, particularly as a small business owner who pays all sides of SS/Medicare/UI/etc. for myself and co-owner spouse, there are a number of politicians advocating increasing these taxes to $250K or total income. Unfortunately, as with the ACA, individuals who are subsidized via employers simply don’t “see” the personal tax implication.

    5. The government doesn’t include interest on the debt in the deficit. Yes it’s fraudulent bookeeping. Someday we could run a budget surplus yet still increase the debt by 1T+.

  3. That means that roughly 18.2 percent of the economy will be diverted to the federal government this year

    Big difference.

  4. “No, the evidence is that tax cuts do not pay for themselves,” Hall said, according to The Hill. “And our models that we’re doing, our macroeconomic effects, show that.” Sorry, Republicans?if you want to cut taxes without hiking the deficit, you’ll have to cut spending too. ”

    The CBO is not the entity that is responsible for scoring tax revenue legislation.

    That would be the Joint Committee on Taxation.

    1. And why should tax cuts pay for themselves anyway? That’s a lame excuse from people who don’t really want to cut spending, but want to be seen as tax cutters.

      1. If taxes were 100%, cutting them to 99% would spur enough taxable business to make up that 1%.

        If taxes were 1%, cutting them to 0% would eliminate taxes.

        It’s all a matter of degree. How much of the shadow economy do you want to bring back into the legit world?

    2. This “evidence” would be what, exactly? It sounds an awful lot like they are creating models with a priori assumptions, feeding some vaguely empirical parameters into them, then reaching the baked-in conclusion.

      1. They also have models based on Keynesian economic theory.

        So much for CBO modeling.

      2. This “evidence” would be what, exactly?

        A few hundred years of recorded US history. Whatever the peak of the Laffer curve is, we’ve never reached it.

        1. You have not only proved nothing, you have furthermore made a claim that no one was addressing. Please, continue.

          1. I’m sorry, did you think I was trying to prove something? I’m simply stating why your fairy tale of choice lacks adherents.

            Obviously it is possible that tax cuts COULD raise revenue, even though they never have. It is possible Obama’s an alien from another galaxy, too. Personally I’m withholding believe until I see some evidence. 🙂

            1. So you assume a conclusion that you don’t have any interest in proving nor can provide any evidence to substantiate. Am I missing something here?

            2. Obviously it is possible that tax cuts COULD raise revenue, even though they never have.

              Revenue has averaged about 17.5% of GDP since the end of World War 2, in a very narrow range, regardless of the tax rates. So while you can claim that tax cuts have never raised revenue, neither can you claim that tax increases raised revenue, either.

        2. “A few hundred years of recorded US history. Whatever the peak of the Laffer curve is, we’ve never reached it.”
          There’s pretty good evidence that the Laffer curve kicks in somewhere around 70%.

          “The New Palgrave Dictionary of Economics reports that a comparison of academic studies yields a range of revenue maximizing rates that centers around 70%.”

          https://en.wikipedia.org/wiki/Laffer_curve

          And US tax rates have been well above that in the past. Currently the highest bracket in NYC pays around 53%.

  5. The biggest problem right now is the cheap money causing a decrease in yield purchasing power causing the consumption of capital.

  6. It’s sad that the current best case scenario for our economy is political gridlock. Long live the gridlock.

  7. So the CBO is saying that the Laffer Curve and all of the empirical data that supports the curve is actually incorrect?

    1. I think the CBO is saying that we’re on the left side of the Laffer curve, rather than the right.

      1. I guess. However, I can envision government officials using that reasoning as a sort of end-of-discussion tactic to quell any mention of a tax cut. As long as they can claim that whatever the current tax rate is on the left side of the curve, then future tax cuts will be increasingly rare.

        1. The empirical evidence is that we haven’t been on the “right” side of the Laffer curve since at least the 1960s. That’s why Republicans generally gave up claiming that tax cuts would raise revenue, and started arguing that tax cuts spurred growth that *eventually* will raise revenue.

          1. The empirical evidence is that we haven’t been on the “right” side of the Laffer curve since at least the 1960s.

            Again, I challenge for presentation of this “evidence”. Tax rates have declined since the 1960s yet tax revenue has continued to increase, in both nominal and inflation-adjusted numbers.

            1. Tax revenue went up because the economy grew. That’s normal, and has nothing to do with the Laffer curve.

              1. So you have none of this “empirical evidence” you spoke of, and moreover your defense is to beg the question?

                1. Do you actually know what “begging the question” means? You seem to think it means “explaining why you’re wrong”.

                  Between the 1960s and today, the US economy grew by around 500%. The average effective tax rate fell by a few percent. Simple math tells you that, duh, of course tax revenue went up!

                  What the Laffer curve predicts is that tax cuts themselves increase revenue. The problem there is that the last 50 years show tax revenues dropping when rates are cut, and only recovering after the economy grows. And of course the economy has grown regardless of what tax rates we had, post-WW2.

                  1. You didn’t explain anything. You dismissed contrary evidence. You assume the conclusion without bothering to prove it. You can blather on about “the last 50 years” or “a few hundred years of recorded US history” (apparently the US is a lot older than I thought, with much better record keeping, too) or whatever makes you feel good, but you’ve got no actual numbers, no treatment of the facts involved, and thus no case to be made.

                    I know what “begging the question” means. You don’t seem to know what “evidence” means.

              2. Isn’t one of the arguments behind the Laffer curve that lowering tax rates will spur economic growth, thus resulting in equal or higher revenue?

                I’m not saying that is what happened in the past, but your argument could be taken as evidence that we are on the left side of the right side.

                1. No, that’s an argument for supply-side economics. Also, our greatest economic growth came during the 1950s and 1960s, when rates were higher than they are now.

                  Then, of course, there’s the fact that all “tax cuts” since the 1980s have been funded with deficit spending. I.e., they’ve been tax deferments, not tax cuts.

                  1. Also, our greatest economic growth came during the 1950s and 1960s, when rates were higher than they are now.

                    What does this have to do with the Laffer curve?

                    1. Are you trying to say higher tax rates caused economic growth here?

                    2. In 1950s and 60s.

                  2. The tax cuts didn’t cause the spending anymore than a tax exemption can be an “expenditure.” The spending caused the spending. The spending was funded with deficits.

                    There’s also the fact that tax increases never realize the static scoring increases in revenue. It’s almost as if people change their behavior in response to tax rates. Care to explain that?

                  3. Also, our greatest economic growth came during the 1950s and 1960s, when rates were higher than they are now.

                    The Post WW2 economic growth was due to the fact that the industrial base of the most of the rest of the developed world had been blown to pieces by the war. The United States had no effective international competition until the rest of the world finished rebuilding the capability – which took quite a while. It had nothing to do with the United States taxing it’s way to prosperity.

                    Furthermore, the federal tax code had far more tax shelters and deductions back then than it does not. It is effective tax rates that count for comparison purposes across time – not nominal tax rates. No one was paying 90% of their income in taxes. Anyone smart enough earn enough money to be subject to that nominal rate was smart enough to lower their effective rate via tax planning.

          2. “The empirical evidence is that we haven’t been on the “right” side of the Laffer curve since at least the 1960s. That’s why Republicans generally gave up claiming that tax cuts would raise revenue, and started arguing that tax cuts spurred growth that *eventually* will raise revenue.”

            No the evidence doesn’t state that. The US top tax brackets were almost certainly on the right side of the Laffer curve before the 1981 tax cuts.

            There have been numerous studies done that say the peak of the curve is roughly 70%. The US highest Federal tax bracket in 1980 was 70%. State taxes combined with Federal taxes were on the right side of the Laffer curve.

            The reason the Reagan tax cuts weren’t deficit neutral were a) primarily because they dropped taxes across the board, and only the highest bracket or two were over the curve and b) they dropped the highest rates by 20%, bringing them further to the Left of the curve than they had been to the right of the curve.

  8. Finally some Suderman alt-text.

  9. The annual deficit for 2015 will be the smallest since President Obama took office.

    Yet *another* accomplishment adding to The Legacy.

    1. How To Create a Deficit Cutting Legacy.

      1. Jack up the deficit in your first year in office.
      2. Lower deficit in each successive year.
      3. Bask in your deficit cutting greatness.

  10. Tax cuts cannot “pay” for spending because the spending is the actual tax.

    The government spends $1. They’ll be taking that $1 from the public one way or another – income tax, sales tax, inflation, debt repudiation, you name it.

    1. While true to some extent, the different ways of “taking from the public” have different effects outside of the government budget.

      1. Sure, with taxation being having the least negative effects because the costs aren’t hidden.

        1. This “least negative effect” is measured by… what, exactly?

          1. Well, people are less receptive to being taxed themselves. Which is why the Democrats always claim they are closing some tax loophole for the rich or just taxing the top earners even when it’s horseshit.

            But tax hikes tend to be harder to get through where as most people don’t realize inflation is a form of taxation in itself.

            1. That’s not what I asked, though. I understand the aesthetic argument. I was looking for some example of “negative effects” and how they’re being measured.

          2. Measured by the fact that the pain is visible and applied primarily to the beneficiaries of the spending.

            Inflation hides the tax (and penalizes saving, and increases the cost of borrowing). Repudiation openly steals the money from lenders (again, penalizing saving and increasing the cost of borrowing). Deferred taxes have the same problems as welfare programs, encouraging people not to pay their own way while sticking someone else with the bill. And so on.

            1. Sorry, hit submit instead of preview. Meant to close with:

              In contrast, direct taxation has no negative effects that are not also shared by the other, indirect forms of taxation, i.e. it denies original the owners of that money the ability to use it as they see fit, and instead uses it as the government sees fit. That same thing happens with repudiation, inflation, and deferred taxation.

              1. Deferred taxes have the same problems as welfare programs, encouraging people not to pay their own way while sticking someone else with the bill.

                You think this problem is greater with indirect taxation than with direct taxation? Who exactly do you think is doing the paying versus receiving the benefits?

              2. Except direct taxation involves hours of keeping records, filling out forms, and maybe hiring accountants. I don’t think indirect taxation has the equivalent.

            2. Measured by the fact that the pain is visible and applied primarily to the beneficiaries of the spending.

              What?? This only applies to actual usage fees and some consumption taxes that operate as usage fees. It doesn’t necessarily (or even likely) apply to income taxes.

              1. Could you clarify what you’re referring to? If you’re just arguing that most government spending is a waste of money then you can amend my statement to read “beneficiaries of the spending that isn’t inherently wasteful”.

                Wasteful spending is a waste regardless of who pays for it, of course. 🙂

                1. Your own sentence isn’t clear to you? You think the pain is applied to the beneficiaries. That is bullshit. In fact it’s no different because the taxes are raised from one cohort and redistributed to another.

  11. While that’s still a pretty big number in raw terms, relative to the size of the economy, it’s not; at about 2.4 percent of GDP, the CBO says, it’s smaller than the typical deficit over the last five decades.

    Now apply the average interest rate over the last 5 decades to the debt and tell me what the deficit would be. Oops, not 2.4% anymore.

  12. Sequestration cuts + tax increases = temp deficit reduction.

    Which doesn’t mean much, because ACA will blow up state budgets and future spending programs will soon take effect.

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