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CBO Begins Drum Beat For Higher Taxes

From the Congressional Budget Office’s Director’s Blog:

Long-Term Budget Outlook

Wednesday, June 30th, 2010

Recently, the federal government has been recording the largest budget deficits, as a share of the economy, since the end of World War II. As a result of those deficits, the amount of federal debt held by the public has surged. At the end of 2008, that debt equaled 40 percent of the nation’s annual economic output (as measured by gross domestic product, or GDP), a little above the 40-year average of 36 percent. Since then, large budget deficits have caused debt held by the public to shoot upward; CBO projects that federal debt will reach 62 percent of GDP by the end of this year—the highest percentage since shortly after World War II. The sharp rise in debt stems partly from lower tax revenues and higher federal spending related to the recent severe recession and turmoil in financial markets. However, the growing debt also reflects an imbalance between spending and revenues that predated those economic developments.

This morning CBO released the latest in its series of reports on the long-term budget outlook. The report examines the pressures on the federal budget by presenting our  projections of federal spending and revenues over the coming decades. Under current laws and policies, an aging population and rapidly rising health care costs will boost outlays for Social Security benefits and sharply increase federal spending for health care programs. Unless revenues increase at a similar pace, such spending will cause federal debt to grow to unsustainable levels. If policymakers are to put the nation on a sustainable budgetary path, they will need to let revenues increase substantially as a percentage of gross domestic product, decrease spending significantly from projected levels, or adopt some combination of those two approaches.

Needless to say, they will adopt a combination of these two approaches. They will introduce new taxes and raise old ones. And they will ‘cut spending,’ insofar as they will begin ‘means testing’ so that ‘the rich’ no longer get Medicare and Social Security benefits that they have paid into for all of their lives.

The Outlook for Major Health Care Programs and Social Security

Growth in spending on health care programs remains the central fiscal challenge facing the nation. CBO projects that if current laws do not change, federal spending on major mandatory health care programs will grow from roughly 5 percent of GDP today to about 10 percent in 2035 and will continue to increase thereafter. (Mandatory programs are those that do not require annual appropriations; the major mandatory health care programs include Medicare, Medicaid, the Children’s Health Insurance Program, and the subsidies that will be provided through the insurance exchanges that will be established as a result of the new health care legislation.)

How is this possible? Didn’t Mr. Obama and the Democrats and even the CBO itself assure us that ‘healthcare reform’ would save the country trillions of dollars and prevent exactly what the CBO is here now predicting?

That estimate includes all of the effects of the recently enacted health care legislation.

So all the promises of ‘healthcare reform’ were simply lies.

Although, CBO expects the legislation to reduce federal budget deficits over the first 10 years and in subsequent decades (through its effects on both revenues and spending), it is expected to increase federal spending in the next 10 years and for most of the following decade; by 2030, however, that legislation will slightly reduce federal spending for health care if all of its provisions are fully implemented, CBO projects…

Yes, things will always be rosy 20 years out.

All told, CBO projects, the aging of the population and the rising cost of health care will cause spending on the major mandatory health care programs and Social Security to grow from roughly 10 percent of GDP today to about 16 percent of GDP 25 years from now if current laws are not changed. (By comparison, spending on all of the federal government’s programs and activities, excluding interest payments on debt, has averaged 18.5 percent of GDP over the past 40 years.)..

In other words, health care costs will be taking as much of the GDP as the entire US budget, 25 years from now. Even though we were just told that healthcare spending will go down in 20 years.

In fact, CBO’s projections understate the severity of the long-term budget problem because they do not incorporate the significant negative effects that accumulating substantial amounts of additional federal debt would have on the economy:

    * Large budget deficits would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower income growth in the United States.
    * Growing debt would also reduce lawmakers’ ability to respond to economic downturns and other challenges.
    * Over time, higher debt would increase the probability of a fiscal crisis in which investors would lose confidence in the government’s ability to manage its budget, and the government would be forced to pay much more to borrow money.

This last means that the US bond rating would be lowered.

Keeping deficits and debt from growing to unsustainable levels would require raising revenues as a percentage of GDP significantly above past levels, reducing outlays sharply relative to CBO’s projections, or some combination of those approaches. Making such changes while economic activity and employment remain well below their potential levels would probably slow the economic recovery. However, the sooner that long-term changes to spending and revenues are agreed on, and the sooner they are carried out once the economic weakness ends, the smaller will be the damage to the economy from growing federal debt. Earlier action would require more sacrifices by earlier generations to benefit future generations, but it would also permit smaller or more gradual changes and would give people more time to adjust to them.

In other words, the CBO is now officially on the bandwagon and it is announcing that it is going to be beating the drum for tax increases and cuts on ‘entitlements’ for ‘the rich.’

They are so independent, you know.

This article was posted by Steve on Wednesday, June 30th, 2010. Comments are currently closed.

8 Responses to “CBO Begins Drum Beat For Higher Taxes”

  1. proreason says:

    The plan is working.

    Check out some of the fancy new tents they make today!!

  2. bobbys says:

    But they did not figure in that in 25 years only 10 percent of Americans will be paying Taxes.

  3. NoNeoCommies says:

    Let’s just take over some government land and start a commune.
    Use barter and trade instead of money and never pay taxes.
    Call it an unending protest.

  4. Gizmo says:

    “If policymakers are to put the nation on a sustainable budgetary path, they will need to let revenues increase substantially as a percentage of gross domestic product, decrease spending significantly from projected levels, or adopt some combination of those two approaches.”

    You know I somehow doubt they will stop spending money on things. Call me a pessimist but this clown administration does not seem to have a good fiscal track record.

    So they are going to raise taxes. You know around my house, we have to live within our means. We make what money we have work and we live from it. If I went to my employer and told him I am going to take more money because I want a fancy new corvette, I would face criminal charges for extortion if I am correct. I would really like to know where these useless excuses for human beings get off telling everyone who does work, that your going to carry even more on your shoulders.

  5. jackal40 says:

    So, before Health Care passed it was going to reduce the deficit and since it’s passed it will increase the deficit. Seems to me there’s a we told you so coming from a lot of voters this NOvember!

    Too bad we can’t force the direct repeal of Health Care and the other massive spending congress has done this past couple of years, or in some way make them pay for it instead of expecting tax payers to.

    Let’s see – soap box, ballot box, jury box, and ammo box. Seems like the third via the SCOTUS indicates it’s time for the fourth.

    • Liberals Demise says:

      As a clergyman said at Pearl Harbor,”Praise the Lord and pass the ammunition.”

  6. Chuckk says:

    The solution to every problem is higher taxes, more fees, added fines. Less spending is never on the table. Funny how that works.

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