With the federal deficit and related fiscal problems on center stage in this year’s congressional campaigns, the latest update on the Budget and Economic Outlook from the Congressional Budget Office deserves particular scrutiny. That report has thrown sand into the political gears of both parties as they develop their fiscal policy arguments for voters.
Based on the non-partisan CBO’s analysis, permanent deficit-financed tax cuts are not as painless for the long-term health of the economy as many in both parties seem to assume. And there is no basis for campaign rhetoric saying that this year’s health care reform “saved” Medicare for many years, or that Social Security poses no budgetary challenge.
The report also cuts against the political winds by indicating that spending increases for economic stimulus, unemployment compensation and the Troubled Asset Relief Program (TARP) have supported the economy while not adding significantly to the long-term structural deficit.
The problem is that spending – primarily for automatic increases in health care and retirement benefits -- is projected to grow faster than revenues and the economy in the coming decades. This leads to a growing gap that must be filled by borrowing.
Candidates thus face some difficult choices that are not often acknowledged on the campaign trail but that will have to be confronted by whoever wins.
On balance, CBO’s August Update confirms that all policy options – spending cuts and tax increases – should remain on the table in discussing potential solutions to our nation’s structural deficit. Economic growth alone will not be enough to achieve a sustainable fiscal policy, nor will trimming everyone’s favorite target – waste, fraud and abuse. Campaign rhetoric that suggests otherwise is not supported by the facts.