CBO: Tax Increase Fails to Solve Spending and Debt Crisis

Patrick Louis Knudsen /

While President Obama keeps calling for more taxes, today’s figures from the Congressional Budget Office (CBO) show the tax hike he signed into law just last month will provide no lasting improvement in the federal government’s fiscal outlook. This is because spending continues to grow, driving deficits back toward the $1 trillion range by late in the decade. If the President is actually serious about solving the nation’s fiscal problems, he must move to the other side of his “balanced approach”: cutting spending.

The figures in the CBO’s The Budget and Economic Outlook: Fiscal Years 2013 to 2023, show the following:

Grim as all this appears, a closer look at these “baseline” figures shows how easily the picture could worsen. For instance, due to estimating conventions written in law, the CBO assumes a sharp plunge in reimbursement rates for Medicare physicians starting next year. Since 2003, however, Congress has routinely waived these reductions. If they do so again, it could add as much as $138 billion in Medicare spending over the next 10 years.

The CBO also assumes the automatic spending cuts known as “sequestration” will kick in on March 1 as scheduled. If Congress does not have the will to maintain this level of cuts—the President just today called for more tax increases to offset some of them—spending could be nearly $1 trillion higher than the CBO estimates over 10 years. This would also drive debt levels much higher than otherwise projected.

On the other hand, the CBO’s figures present an opportunity for the President or Congress to claim phantom spending reductions. This is because the baseline projects spending for activities in Iraq and Afghanistan will grow with inflation each year, when in fact it is scheduled to decline sharply as the U.S. brings troops back home. In past budgets, the President has claimed bogus new savings by not spending these additional funds—which were not going to be spent anyway. Use of these phantom savings, whether by the Congress or the President, will reveal a lack of seriousness about solving the government’s spending and debt problems.

In any case, the message to be drawn from the CBO’s report is the same as it’s been for years: To have any chance of getting federal deficits and debt under control—and moving toward a balanced budget—Congress and the President must take on the hard work of reforming entitlements and restraining spending. There truly is no other way.