The Congressional Budget Office recently updated its estimates of the fiscal impact of the Obama administration’s proposals. The results are breathtaking, and show that the federal government is making a great leap forward into the red. While there is still time, taxpayers should be asking some tough questions.
The CBO is intended to be a non-partisan referee that analyzes the fiscal impact of proposed legislation. In its March 5 assessment of the White House’s budget request for 2011, the CBO painted a disturbing picture of the indebtedness that Obama proposes.
For example, the CBO projects that the federal budget deficit in fiscal year 2010 (which ends on Sept. 30) will be $1.5 trillion and would fall only slightly to $1.3 trillion the following year.
The borrowing binge isn’t solely the result of the current economic crisis. If White House plans were enacted, the CBO projects that the deficit as a share of the economy would gently decline through 2014, but then it would begin rising again. The huge deficits are a long-term phenomenon, not limited to emergency “stimulus” spending.
The CBO estimates that over the next decade, the national debt would increase more than $12 trillion if Obama gets his way. By the end of 2020, the total debt would be more than $20 trillion, or 90 percent of the country’s GDP. Indeed, in that year alone, just the interest payment to service the debt would cost taxpayers $925 billion. That’s some finance charge!
Yet as ominous as these projections are, they aren’t pessimistic enough. The CBO assumes that the economy is slowly climbing out of recession, and that tax revenues will recover accordingly. Yet more and more analysts are warning of a “double dip” as disturbing signs develop in sectors such as commercial real estate and the credit card industry.
The CBO estimate is optimistic for another reason. In order to isolate the pure budgetary effects of various spending proposals relative to a baseline, the CBO understandably holds interest rates constant across scenarios. But in reality, if the government begins piling up debt as rapidly as the White House intends, the cost of borrowing will eventually rise.
Ironically, the very economic recovery needed to kick start tax revenues will provide alternative investment opportunities. So even if the worst is behind us, and the economy slowly returns to normal, investors will insist on higher interest rates before lending money to a U. S. government plunging ever deeper into the red.
If most Americans do not endorse our debt march, there is still time to slam on the brakes. The solution to runaway deficits is simple: The government needs to rein in its spending. The American people simply can’t afford Obama’s wish list.
Robert P. Murphy is senior fellow in Business and Economic Studies at the California-based Pacific Research Institute.