By Laurence Kotlikoff
(Laurence Kotlikoff is professor of economics at Boston University, president of Economic Security Planning Inc., and author of “The Healthcare Fix.” The opinions expressed are his own.)
The two parties are having a heated debate over the Republican plan to slice $61 billion off Uncle Sam’s projected $3.6 trillion budget. If the Republicans get their way, the deficit will fall from 9.5 percent of gross domestic product to 9.1 percent. If they don’t, they’ll probably shut the government for a couple of days. Then they’ll compromise on, say, a $40 billion budget cut, having proved they gave it their best shot.
Arguing over lowering our deficit by just 0.4 percent of GDP when we need to run massive surpluses to deal with the baby boomers’ impending retirement is, pick your metaphor — rearranging the Titanic’s furniture, Nero’s fiddling, Custer’s Last Stand.
Is this malign fiscal neglect, or has Congress somehow missed what its own Congressional Budget Office is indicating? CBO’s baseline budget updates suggest the date for reaching what Carmen Reinhart, Kenneth Rogoff and other prominent economists believe is a critical insolvency threshold — a 90 percent ratio of federal debt held by the public to gross domestic product — has moved four years closer, in just nine months!
The CBO releases its realistic long-term forecast — the alternative fiscal scenario — every June. In between, it provides us with periodic updates of its unrealistic 10-year baseline scenario, based on “current law.” Congress, for political reasons, forces the agency to interpret current law in ways that generally make spending much lower and taxes much higher than is likely.
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Read more: Laurence Kotlikoff: Fiscal Meltdown in Spitting Distance