Some in Washington are ready to declare victory over the deficit problem, and on Monday Standard & Poor’s said it would revise its credit rating outlook for the government from negative to stable. But the deficit problem is actually still far from being solved and its lengthy shadow will hang over every other issue until a fiscal sustainability plan is in place.
While the deficit is coming down in the short term, the most responsible factors are the recovering economy, allowing tax cuts to expire and assuming that improbable cuts in discretionary spending and Medicare provider payments will actually occur.
Even if all that happens, however, the budget would still be on an unsustainable track. The Congressional Budget Office estimates that under current law the deficit will be rising again in 2015 -- and that both the deficit and debt will continue to outpace economic growth in the decades ahead.
While annual appropriations, including defense, have been capped, mandatory spending (entitlements) and interest on the debt will continue to grow on autopilot as the population ages. Projected revenues will grow, but not by enough to keep up with spending.
The president, the House and the Senate have each presented budgets that would improve the current outlook. But none of them will be enacted as written, and lawmakers have not moved to reconcile their differences.
“Thus, the ‘declare victory’ strategy is really a surrender to political fantasies,” says Robert L. Bixby, executive director of The Concord Coalition. “A comprehensive approach looking at all the government’s commitments and sources of income is still needed as much as ever. Ignoring the deficit won’t make it go away.”