Democracy Has Prevailed.

July 20, 2014

Um, I Think The Braintrust Left Something Out. Again.

From today's Tribune-Review:
The Obama administration might be painting a rosy picture of the federal deficit — the lowest thus far under Barack Obama's tenure — but the Congressional Budget Office is ringing the alarm bells. It reminds that the federal debt that today is 74 percent of the economy will explode to 106 percent by 2039. Spending and deficits must be curbed, the CBO warns. But, of course, that's anathema to “progressives,” who can't seem to wrap their brains around the Law of Diminishing Returns. [Bolding in original.]
But take a look at the report.  On page 5 (page 5!!) we read:
The unsustainable nature of the federal tax and spending policies specified in current law presents lawmakers and the public with difficult choices. Unless substantial changes are made to the major health care programs and Social Security, spending for those programs will equal a much larger percentage of GDP in the future than it has in the past. At the same time, under current law, spending for all other federal benefits and services would be on track to make up a smaller percentage of GDP by 2024 than at any point in more than 70 years. Federal revenues would also represent a larger percentage of GDP in the future than they have, on average, in the past few decades. Even so, spending would soon start to outpace revenues by increasing amounts (relative to GDP), generating rising budget deficits. As a result, federal debt held by the public is projected to grow faster than the economy starting a few years from now, and because debt is already unusually high relative to GDP, further increases could be especially harmful.

To put the federal budget on a sustainable path for the long term, lawmakers would have to make significant changes to tax and spending policies: reducing spending for large benefit programs below the projected levels, letting revenues rise more than they would under current law, or adopting some combination of those approaches. [Emphasis added.]
And what do you think "letting revenues rise more than they would under current law" could possibly mean?

The next page offers up an explanation.  In a discussion of two competing scenarios (do we do this sooner or later?) the CBO's authors use other language to describe what "letting revenues rise" means.  First the "sooner" scenario:
The sooner significant deficit reduction was implemented, the smaller the government’s accumulated debt would be, the smaller policy changes would need to be to achieve a particular long-term outcome, and the less uncertainty there would be about what policies would be adopted. However, if lawmakers implemented spending cuts or tax increases quickly, people would have little time to plan and adjust to the policy changes, and those changes would weaken the economic expansion during the next few years. [Emphasis added.]
And then the "later" scenario:
Reductions in federal spending or increases in taxes that were implemented several years from now would have a smaller effect on output and employment in the short term. However, waiting for some time before reducing federal spending or increasing taxes would result in a greater accumulation of debt, which would represent a greater drag on output and income in the long term and would increase the size of the policy changes needed to reach any chosen target for debt. [Emphasis added.]
Isn't it interesting how the braintrust, in informing its loyal readers about the impending budgetary doom described by the CBO, left out the part about the possibility of avoiding said doom by increasing taxes?

Yea, they want you to know the fullest picture possible of the CBO report.

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