Negotiations over shrinking the $14+ trillion federal budget deficit will soon reach a fever pitch, as the deadline for increasing the debt ceiling looms in August and the search for a grand bargain between Democrats and Republicans intensifies. This morning Majority Leader Rep. Eric Cantor pulled out of negotiations with the White House citing differences over tax increases, which will certainly prove a political obstacle for any deal. How much of the budget balancing will come through spending cuts versus revenue (tax) increases? No matter what the outcome the message from multiple sources is clear: the time to act is now, before the budget deficit become so out of hand that it swallows up most American economic progress. The Congressional Budget Office late yesterday put out its budget projections and predicted that if the same policies persist—the Bush tax cuts are kept in place, spending on Social Security & Medicare continue at current paces, drastic spending cuts are not enacted—debt held by the public would balloon to nearly 190% of GDP by 2035. The CBO sums up these frightening numbers succinctly: “Such a path for federal borrowing would clearly be unsustainable.”
The most compelling possibility laid out in the CBO projections is a scenario under which Congress does absolutely nothing: keeping spending at current levels, allowing tax cuts expire, allowing the alternative minimum tax to expand to half of all taxpayers & keeping Social Security & Medicare from any new growth. Under the “do-nothing” scenario the government would have a balanced budget by 2017. Of course taxes, as a percentage of the total economy, would rise to 23%. So how will Congress balance the budget, and would you approve if they did nothing at all?
Maya MacGuineas, president of the Committee for a Responsible Federal Budget; director of the Fiscal Policy Program at the New America Foundation
Robert Bixby, executive director of The Concord Coalition, a non-partisan, grassroots organization advocating responsible fiscal policy