Back in August of 2010, the Congressional Budget Office estimated the federal deficit for 2011 to be $1 trillion. On Thursday, after revising its assumptions, the CBO announced they missed the mark by $500 billion. The deficit number has been revised upward to $1.5 trillion, and could bring the national debt to $20 trillion by 2021.
Back in August the CBO assumed that the Bush tax cuts would end in December, that doctors would get another financial haircut under Medicare, and that unemployment benefits wouldn’t be extended. It also assumed modest growth in the economy and consequently in tax revenues and that spending would be somewhat restrained. The CBO was wrong on all counts, and the difference between anticipated revenues and spending has virtually exploded.
One of the annoying assumptions, of course, is that the extension of the Bush tax cuts is considered a “cost” to the government. That assumption is based on the concept that all revenues belong initially to the government, and then as that government allows individuals to keep part of their incomes, those are considered costs to the government. It is the concept of human rights turned on its head.
In its report, the CBO points out that, despite the stimulus programs under the Bush and Obama administrations, employment (which declined by 7.3 million jobs during the Great Recession) only gained 70,000 jobs “on net” between June 2009 and December 2010. Consequently, tax revenues have fallen to just 14.8 percent of GDP, a low unmatched in decades.
But, not to worry. As the CBO points out, by 2014 the deficits will be in decline again, to below $700 billion a year. But that assumes that the Bush tax extension ends in 2012, thus increasing government revenues once again. If those tax cuts are extended however, deficits will increase by between $400 billion and $500 billion each year thereafter.
Simple math concludes that deficits could add another $6 to 7 trillion to the national debt by the end of the decade, with the present $14 trillion looking paltry indeed.
The CBO laments:
The deficits that will accumulate under current law will push federal debt…to significantly higher levels. With such a large increase in debt, plus an expected increase in interest rates as the economic recovery strengthens, interest payments on [that] debt are poised to skyrocket over the next decade. CBO projects that the government’s annual spending on net interest will more than double between 2011 and 2021…
It could actually be worse than that. As CBO Director Doug Elmendorf noted in his blog, “Beyond [that] 10-year projection period, further increases in federal debt relative to the nation’s output almost certainly lie ahead if current policies remain in place.”
Two big-spending Democrats who voted consistently for bigger government and against the constraints of the Constitution, added their thoughts about what to do. Senate Budget Chairman Kent Conrad (D-N.D. and Freedom Index of 5) demanded that the Obama administration and Democratic and Republican lawmakers “move off their fixed positions and find common ground” to reach a deficit reduction agreement immediately. Chris Van Hollen (D-Md. and FI of 3), the ranking Democrat on the House Budget committee admitted that some sort of deficit reduction plan must be adopted, but “blindly slashing investments in important priorities that will help us win the future will slow down our fragile economic recovery and put more people out of work.”
In other words, these pillars of constitutional restraint recognize that something needs to be done, but cutting spending in any major way is off the table, and that, instead, enhancing tax revenues is the best way to close the gap. Because, after all, it’s the government’s money in the first place, and the taxpayers should be glad that the government, in its wisdom, allows them to keep so much of it in the first place.
In a sane and logical world, the limits placed on government by the Constitution would be put back in place, every government expenditure would be measured against government’s legitimate constitutional role, and would be extinguished accordingly if it was found outside of its mandate.
The President of the John Birch Society, John McManus, had this to say about the upward revision of the deficits by the CBO and present attempts to rein in government spending:
The Congressional Budget Office says the red ink for the current fiscal year will be greater that previously expected [and is now] a $1.5 trillion shortfall. The most sane response [so far] to this staggering boost to the national debt [is] suggested cuts in government programs [which would amount to] no more than $500 billion. Which means that, even if that unlikely reduction in spending is enacted [in its entirety], the debt for this year will still top $1 trillion. This isn’t fiscal sanity, it’s fiscal madness.