The Congressional Budget Office last week released its annual budget and economic outlook report, and although the news was gruesome, the report was greeted in Washington with a giant yawn. The assumption among Republicans and Democrats is that the political rewards for curbing runaway budget deficits are too meager to justify the risks. There’s a consensus to do nothing — and to hope that nothing goes disastrously wrong.
Just how large are impending deficits? Here are the CBO projections.
From 2019 to 2028, the federal government will run cumulative annual deficits of $12.4 trillion. The deficits — the gap between what government spends and what it collects in taxes — average about 5 percent of the economy (gross domestic product, or GDP). Since 1950, deficits have equaled or exceeded 5 percent of GDP in only six years (1983, 1985 and 2009-2012), and most of these occurred after deep recessions. These reduce tax revenue and boost “safety net” spending (unemployment insurance, food stamps and the like).
By contrast, today’s deficits occur with low unemployment and an economy that has been expanding for nine years.
Even the CBO figures may be optimistic if they’re based on unrealistic assumptions. Defense spending as a share of GDP is projected to fall; in a dangerous world, that may not happen. Similarly, some personal tax cuts are scheduled to expire at the end of 2025; many observers think Congress will extend them. Adding these amounts to government borrowing would increase the federal debt — the total of all past deficits — to more than 100 percent of GDP, about as large as right after World War II.
No one knows the consequences of these unprecedented peacetime deficits, but the CBO has listed some possibilities:
● They may further raise interest rates, which would increase deficits, squeeze other federal programs and crowd out borrowing by businesses…