The Congressional Budget Office (CBO) released its Budget and Economic Outlook today – 5-25-22. CBO projects high rates of inflation will bring the national debt to a low of 96 percent of Gross Domestic Product (GDP) in 2023 before rising to a record 110 percent of GDP by 2032. CBO projects the deficit will total $1 trillion in 2022 and nearly $16 trillion over the subsequent decade under current law, while CPI inflation will be 4.7 percent in 2022 and 2.7 percent in 2023.
Unpaid-for extensions of expiring legislation, spending increases, or tax cuts would make the fiscal outlook even worse. The Committee for a Responsible Federal Budget will publish our preliminary analysis here and provide further analysis later in the day.
The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:
CBO’s latest projections show some expected good news: after two years of deficits averaging a record $3 trillion and debt nearly as large as the economy, both deficits and debt as a share of GDP will decline this year. But this is no time to break out the champagne glasses – deficits will remain extremely high and debt is on course to reach a new record as a share of the economy by 2031.
The combination of expiring COVID relief and massive inflation, along with the economic recovery, have helped provide a fiscal reprieve. But trillion-dollar deficits are here to stay, and $2 trillion deficits will arrive by 2031. Meanwhile, debt is slated to reach a record 110 percent of GDP within a decade and could rise even further if lawmakers extend various expiring policies.
Today’s report also highlights disturbing fundamentals – the rising costs of Social Security, health care, and interest on the debt will continue to eclipse revenue growth, and the debt will keep rising.
Rather than declare victory and abandon deficit-reduction efforts, policymakers should work together to truly bring our deficit and debt under control. It’s time to put words into action and enact a fiscal plan that pays for new initiatives, lowers health care costs, raises revenue, secures our major trust funds, cuts wasteful spending, stomps out inflation, and promotes strong economic growth. Rather than celebrating the false victory of returning from fiscally-disastrous to fiscally-bad, we should work to achieve a position of actual fiscal health.
“We refer to the idea that government must ‘tighten its belt’ as a necessary policy response to higher indebtedness as the household fallacy. We provide a reason to be skeptical of this claim that holds even if the economy always operates at full employment and all markets clear. Our argument rests on the fact that, in an overlapping-generations (OLG) model, changes in government debt cause changes in the real interest rate that redistribute the burden of repayment across generations. We do not rely on the assumption that the equilibrium is dynamically inefficient, and our argument holds in a version of the OLG model where the real interest rate is always positive.”
Deficits are considered to represent sinful profligate spending at the expense of future generations, who will be left with a smaller endowment of invested capital. This fallacy seems to stem from a false analogy to borrowing by individuals.
Current reality is almost the exact opposite. Deficits add to the net disposable income of individuals, to the extent that government disbursements that constitute income to recipients exceed that abstracted from disposable income in taxes, fees, and other charges. This added purchasing power, when spent, provides markets for private production, inducing producers to invest in additional plant capacity, which will form part of the real heritage left to the future. This is in addition to whatever public investment takes place in infrastructure, education, research, and the like. Larger deficits, sufficient to recycle savings out of a growing gross domestic product (GDP) in excess of what can be recycled by profit-seeking private investment, are not an economic sin but an economic necessity. Deficits in excess of a gap growing as a result of the maximum feasible growth in real output might indeed cause problems, but we are nowhere near that level.”
You mean we can’t spend money ad infinitum with no worries? Last year we could per AOC and others. This committee needs to get its facts straight before telling us there will be a reckoning down the road.
As Alfred E Neuman would say: “What me worry”? I always laugh when I think about where Alfred E. Neuman may have come from – an auto parts post card.
As my uncle “J” would say, “Let the horse worry, he has a big head”!
Unfortunately, as we experienced back in 1983, Congress waited until funds were all but exhausted before making changes – the tried and true way to avoid blame … “never let a good crisis go to waste”…