I suppose I will come out of my long blogging hibernation to comment on the bill that was just passed to increase the debt ceiling. I’m having a hard time reconciling the media perception of the budget cuts with the bill that actually passed. Everyone is screaming about huge cuts, but here are the facts.
The CBO analysis finds that in the best-case scenario, this bill will reduce spending by $2.3 trillion over 10 years, relative to the CBO baseline. The “over 10 years” and “relative to the CBO baseline” are the important points here.
The CBO baseline is the prediction of what the finances of the federal government would look like under current law before the bill was passed. It projected that over the next 10 years, spending would continue to increase, and we would continue to run deficits. Note that this baseline assumes that the Bush tax cuts expire next year. The deficit amount varies year to year, but for the entire 10-year period, total spending was projected to be $46 trillion dollars. Total revenues were projected at $39 trillion, resulting in a deficit of $7 trillion. If the Bush tax cuts are extended, revenues would be lower and the deficit would be larger than these projections. But for now, let’s assume the tax cuts will expire.
With this bill, in the best-case scenario, our spending for the 10-year period is $43.7 trillion instead of $46 trillion. That’s your “severe” $2.3 trillion cut. It is a cut of roughly 5%.
What about the national debt? Well, today the national debt is about $14 trillion. The CBO baseline predicted a $7 trillion deficit over the next 10 years, resulting in a national debt of $21 trillion at the end of 10 years. With this bill, our debt comes to a mere $18.7 trillion at the end of 10 years.
These are the numbers causing all the gnashing of teeth – a 5% budget cut which allows the debt to grow by 33% over 10 years. Under this bill, spending doesn’t go down – it just goes up a little slower than projected. Under this bill, the national debt is not reduced – it just doesn’t increase as fast as it otherwise would. This bill does not come anywhere close to balancing the budget, much less paying off any debt.
As a result, I find all the hysteria over these “huge” cuts to be pretty ridiculous. Since the bill doesn’t even cut enough to prevent the debt from growing as a percentage of GDP, you can bet we’ll be revisiting the deficit problem at some point in the not-too-distant future.
Filed under: Economics, Politics | Leave a Comment »
