The Congressional Budget Office (CBO) today released a ten-year budget baseline showing $6 trillion in deficits over the next decade. Yet because Congress requires the CBO to include all sorts of unrealistic assumptions (that all tax cuts will expire, that the AMT will never again be patched, that discretionary spending will barely move for a decade), some adjustments must be made.
After building a true budget baseline, the sobering result shows ten-year deficits of $13 trillion. The annual budget deficit never falls below $1 trillion. By 2019, the debt is projected at $22 trillion, or 98 percent of GDP.
These deficits are driven by spending. Even if all the 2001 and 2003 tax cuts were extended and the AMT were patched, 2020 revenues would be just 0.7 percent of GDP below the historical average. Yet 2020 spending would be 5.2 percent of GDP above the historical average. This means that 88 percent of the additional deficits would come from higher spending and only 12 percent would come from lower revenues.
The numbers are truly staggering. Between 2009 and 2020, the national debt would increase by $130,000 per household. By 2020, net interest alone would cost $1 trillion – one-quarter of all tax revenues. Federal spending would reach 25.9 percent of GDP, shattering the post-war record. And these estimates do not include the cost of the president’s health-care and cap-and-trade proposals. His spending agenda — which would be unaffordable even in good budget times — is completely unrealistic given this sea of red ink.
That said, the president’s proposal to freeze discretionary spending (outside of defense, homeland-security, veterans, and international-affairs spending) for three years is somewhat helpful. The savings won’t be large — perhaps $20 billion per year — but this is the low-hanging fruit. Of course, these programs comprise only one-eighth of the budget ($420 billion), and they can still feast on their 19 percent hike over the past two years, plus their $311 billion in mostly unspent stimulus funds.
Still, the CBO numbers show that the low-hanging fruit will only save so much. Drastic reform of the federal budget is needed.