12 Oct 2009

Scary CBO Chart

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You know those CBO projections getting bounced around, saying the debt as a share of GDP is supposed to double in the next ten years? Well, things don’t exactly turn around after that. (That’s one of the reasons that Krugman’s “Why worry?” posts on the deficit projections are misleading. He does show that it wasn’t simply a cut in WW2 expenditures that allowed that figure to fall, but right now Medicare etc. are runaway trains. The economy isn’t going to simply outgrow them, unless Ron Paul becomes president in any event.) Here is the CBO’s long-term budget outlook, as of June:

Here’s the CBO’s explanation of the two different scenarios:

The figure on the cover shows federal debt held by the public under the Congressional Budget Office’s alternative fiscal scenario and its extended-baseline scenario. The former incorporates some changes in policy that are widely expected to occur and that policymakers have regularly made in the past; the latter adheres closely to current law, following the agency’s baseline budget projections for the first 10 years and then extending the baseline concept for the rest of the projection period.

And keep in mind that government forecasts typically underestimate how much tax hikes and other interventions will kill revenue collection. If I’m right, and the economy has not yet begun to recess, then I don’t even want to think about how high the dotted line should be…

That’s why Obama is going to legalize–and tax the heck out of–marijuana.

UPDATE: Sorry, the above is ambiguous. (The CBO description on the inside is better, and I didn’t realize pasting in the explanation for the front cover wasn’t as clear.) The line referring to the Obama administration’s plans is the top (scary) line! To see this, look at the forecast for 2019. The top line is the one hitting 80% or so; that’s the number the press is reporting, when they say, “CBO says Obama will double debt in a decade.” The bottom line means, if Congress does nothing ever again, and let’s stuff run on autopilot. So that means no health care (which adds trillions in expenditures over a few decades), no cap and trade (which CBO says will shave off GDP growth), expiration of Alternative Minimum Tax exemptions on the middle class, expiration of Bush tax cuts, etc. Note that this is my quick explanation, and I leave open the possibility that I am wrong about the different things going into the assumptions. But I’m pretty sure that if you ask, “Where is the Obama administration taking us?” then the CBO points you to the bigger debt line.

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