October 24, 2014

What If They Had Just Gone Home?

As President Obama’s new budget commission begins its search for answers to the difficult fiscal challenges facing the nation, it must reverse the usual desire in Washington to solve every problem by spending more and taxing less without regard to how it all adds up.

Consider what has happened over the last decade. In January 2001, Congress had a very nice “problem” on its hands: what to do with a projected 10-year budget surplus of $5.6 trillion. At that time, the projected surplus for the fiscal year ending Sept. 30, 2009 was a mind-boggling $710 billion.

In fact, it was projected that by 2009 the entire debt held by the public would be essentially paid off. Serious analysts even worried that the government might start buying private-sector assets with all the extra money.

Things didn’t exactly work out that way. The actual number for 2009 was a deficit of $1.4 trillion. And the cumulative total over the same 10-year period (ending in 2011) is now a projected deficit of $5.9 trillion.

Concerns about paying off the debt too fast are as remote as concerns that Columbus would sail off the face of the Earth.

What happened to flip the 2001 projection by $11.5 trillion in the wrong direction? Plenty.

For one thing, the economy did not turn out to be as buoyant as assumed. According to Congressional Budget Office (CBO) estimates, economic and technical factors reduced the 10-year surplus by $3.5 trillion.

That change, however, would still have left a 10-year surplus of $2.1 trillion and -- remarkably -- a deficit of just $1 billion last year.

What happened to the rest of the projected surplus? Congress spent some of it and gave the rest away in tax cuts.

In 2009, for example, Congress spent $826 billion more on programs than had been projected in 2001. Taxes were cut by $363 billion. Additional debt service stemming from these legislated changes cost $225 billion. That comes to a negative impact of $1.4 trillion.

In other words, the $1.4 trillion deficit in 2009 can be entirely attributed to the $1.4 trillion of legislation enacted by Congress since January 2001. If they had just  gone home and not come back, the 2009 budget would have been balanced.

This, of course, was never a realistic possibility. Stuff happens. When it does, we expect Congress to do something about it – such as responding to the 9/11 attacks, Hurricane Katrina, a banking crisis and two recessions.

Then there are the things we want but don’t necessarily need -- such as across-the-board tax cuts and a Medicare prescription drug benefit. It adds up.

The lesson: Choices must be made. Washington can’t afford to deliver new benefits, expand military engagements and enact tax cuts all at once. If we want big government, we have to pay for it. If we want limited government, we have to scale back federal commitments. It’s a matter of arithmetic, not ideology.

Unfortunately, this lesson has not sunk in. Outlays in the President’s budget would average 23.3 percent of GDP over the next 10 years -- roughly two percentage points higher than the average over the past four decades. Revenues would fail to keep pace. They would rise from the 40-year average of 18.3 percent of GDP to an average of 18.9 percent now through 2020.

This gap between spending and revenue represents an average deficit of 4.5 percent of GDP, which even the administration concedes is unsustainable.

And while Republicans lament these big projected deficits, it is unclear that they would do much better since they advocate tax reductions but offer only vague calls for spending restraint. The spending and revenue lines might both be lower under a Republican budget but the deficit might come out just as high.

Consensus in Washington seems to exist on only two propositions. One is that current policies are not sustainable, and the second is that the other side deserves the blame. The first proposition is unassailable. The second is a distraction. The blame game won’t get us very far, except deeper in debt.

No significant progress will be made on the deficit until both sides become clear about the real consequences of their policy choices. If the Democrats want to spend at the level recommended in the President’s budget, they will have to raise taxes. If the Republicans want to cut taxes, they need to be a lot more specific about how they would cut spending.

In the end, the elected officials can’t just go home. They have a job to do, and they must do it a lot better than they have since the giddy surplus days of January 2001.

Robert L. Bixby is executive director of The Concord Coalition, a nonpartisan, grassroots organization dedicated to fiscal responsibility.