Keep on digging!

Last month the Congressional Budget Office released their 2011 Long-Term Budget Outlook. Unsurprisingly, this was not reported by the media or mentioned by any of the players in the fiscal tug-of-war that’s currently occupying our elected parasites. It’s likely that most of them haven’t even read the report.

They should, and the the media should be all over this, because the CBO report paints a very bleak picture of our fiscal situation. You should also understand that historically the CBO almost always overstates revenues and understates expenditures. In addition, the language of their reports is purposely vague. Even with that, the picture they paint is frightening indeed.

The report analyzes the impact on the budget under two scenarios. Under the most optimistic scenario, things are bad. Under the more likely scenario, things are catastrophic.

Under the Extended Baseline scenario, expiration of tax cuts, changes in tax law, and the way that the tax system interacts with the economy result in increasing revenues, with revenue reaching about 23 percent of GDP by the year 2035, and continuing to grow after that. At the same time, spending on everything but health care, Social Security, and interest on the debt would decrease to the lowest levels since World War II.

The projected result of the Extended Baseline scenario is that federal debt will increase to about 84 percent of GDP by the year 2035, from about 69 percent now. Interest on the federal debt will be about 4 percent of GDP, or about 17 percent of all federal spending.

The Alternative Fiscal Scenario incorporates several expected changes of law. The 2001 tax cuts, extended in 2010, will be extended again, the reach of the alternative minimum tax is reduced, and in general tax law will change to keep revenues at their historical average of about 18 percent of GDP. In addition, health care costs are projected more realistically and spending on other government programs are not expected to decrease as much as in the Extended Baseline scenario.

Under the Alternative Fiscal Scenario, federal debt explodes, reaching 100 percent of GDP by the year 2021, and 190 percent of GDP by 2035.

According to the report:

Many budget analysts believe that the alternative fiscal scenario presents a more realistic picture of the nation’s underlying fiscal policies than the extended-baseline scenario does. The explosive path of federal debt under the alternative fiscal scenario underscores the need for large and rapid policy changes to put the nation on a sustainable fiscal course.

Note that the current spending is not sustainable, nor is either of the scenarios outlined above.

Scary as those projections are, the really frightening part of the report is contained in the section entitled The Impact of Growing Deficits and Debt. The first paragraph is so alarming that it should have every American calling his elected representatives to demand immediate changes to put us on a sustainable path:

CBO’s projections in most of this report understate the severity of the long-term budget problem because they do not incorporate the negative effects that additional federal debt would have on the economy, nor do they include the impact of higher tax rates on people’s incentives to work and save. In particular, large budget deficits and growing debt would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower income growth in the United States. Taking those effects into account, CBO estimates that under the extended baseline scenario, real (inflation-adjusted) gross national product (GNP) would be reduced slightly by 2025 and by as much as 2 percent by 2035, compared with what it would be under the stable economic environment that underlies most of the projections in this report. Under the alternative fiscal scenario, real GNP would be 2 percent to 6 percent lower in 2025, and 7 percent to 18 percent lower in 2035, than under a stable economic environment.

In other words, the budgetary impact of our fiscal overindulgence results in a reduction of GNP in the next 15 years.

As I said before, CBO projections in the past have typically been overly optimistic because they are based on current policies and projections of historical averages. They don’t take into account the rate at which government spending has increased over time. Regardless, even the CBO’s most optimistic projection here is unsustainable.

Meanwhile, Congress and the President are wrangling over a plan to reduce deficits by up to four trillion dollars over the next 10 years. Whereas that sounds like a lot (about a 27% decrease in deficit), it still saddles us with about $11 trillion more debt by the year 2021. Assuming, of course, that the plan actually has the projected impact. More likely, flaws in whatever convoluted legislation they cook up will result in much lower savings, and future legislation will negate whatever actual savings is realized.

When you find yourself in a hole with a shovel in your hand, sinking ever deeper, the first thing you should do is stop digging and drop the dang shovel. When you find yourself sinking deeper into debt, the first thing you have to do is stop borrowing money!

Any fifth grader can do the math. If you keep taking more than you’re getting, eventually you have nothing.

Putting our government on a sustainable fiscal path will require pain. A lot of pain. Historical evidence and the most recent CBO report indicate that raising taxes will not have a positive impact on our budgetary problems. The only way we can solve the problem is to reduce spending. As I pointed out in Out of Control, more than 60% of federal spending is on “mandatory” programs: Social Security, Medicare, Medicaid, unemployment, welfare, etc. We spend more on those programs alone than we take in every year in revenues. Those programs must be cut.

But cutting any of those programs is political suicide. Because our elected “leaders” are more interested in keeping their jobs than they are in prolonging our way of life, Congress and the President will end up passing bullshit “reform” legislation that just whitewashes over the problem, perhaps extending the inevitable for another few years–long enough that some other suckers have to worry about it.

So go ahead, Mr. President. Mr. Speaker. Mr. Senate Majority Leader. Have your fun. Make all your silly speeches and look good for your constituents. Play the game of making the other guy look bad so that you and your parties can remain in power. But please don’t expect those of us who actually paid attention in fifth grade math class to swallow the shit you’re shoveling.