In the midst of two major scandals breaking in Washington, an important report from the Congressional Budget Office (CBO) received little media attention. In its updated budget outlook released Tuesday (May 14), the CBO revised its estimate for the annual deficit for this fiscal year to $642 billion, or 4% of GDP. That is $203 billion less than the CBO estimated a few months ago, and it represents the smallest budget shortfall since 2008.
According to the CBO, the deficit will fall to $378 billion – 2.1% of GDP – by 2015 with no congressional action. The deficit will remain below 3% until 2019, at which point it will start to increase again. For comparison, consider the fact that for fiscal year 2009-2010, the deficit was more than 10 percent of GDP. In general, deficits below 3% are considered “sustainable” because, at that level, the debt will no longer be rising faster than the economy.
The CBO noted that the dramatic decrease in the annual budget deficit has been driven largely by rising tax revenues, the economic recovery and higher payments from Fannie Mae and Freddie Mac. “Revenues have been strong as the economy has outperformed a bit,” Joel Prakken, founder of Macroeconomic Advisers, told the New York Times.
Neither Republicans nor Democrats, however, were quick to embrace, or claim credit for, the dramatic deficit reduction identified in the CBO report.
For Republicans, the party of “fiscal responsibility,” the sharp deficit reduction should have been embraced as a signature domestic policy achievement. Indeed, much of the deficit reduction identified in the CBO report is the result of a willingness on behalf of the Republican party to bring the country to the brink of economic disaster to force deep reductions in spending. But Republicans virtually ignored the CBO’s report.
Instead of embracing the CBO report, or even acknowledging progress toward deficit reduction, congressional Republicans used the occasion to call for further spending cuts. “This new report shows that the President’s budget doesn’t come close to solving the problem,” House Budget Committee Chairman Paul Ryan said in a statement. Similarly, Senator Jeff Sessions, the top Republican on the Senate Budget Committee, warned of a “relentless rise” in debt after 2015. “This is the definition of an unsustainable path,” Sen. Sessions said. “We remain on a course that will lead to fiscal crisis, as expert after expert has warned us.”
On the other side of the aisle, Representative Chris Van Hollen, the top Democrat on the House Budget Committee, argued that the CBO’s report blunts Republican arguments for further spending cuts. “We must avoid austerity measures that would slow job growth in the short term as we also work to reduce the long-term deficit in a balanced way,” Rep. Hollen said in a statement.
The merits of the Republican or Democratic approach to the federal deficit should be vigorously examined and debated. But the response to the CBO’s report makes clear this salient fact: few people in Washington actually care about reducing the deficit. When people in Washington talk about deficits, they are actually talking about something else.
On the Right, the CBO report represents the wrong kind of deficit reduction. When Republicans talk about the debt, they are typically talking about shrinking social programs and “smaller” government where it suits their ideological leanings. On the Left, the CBO report represents too much deficit reduction. When Democrats talk about the debt, they are typically talking about shielding and/or expanding social programs and increasing revenues (read: taxes).
But if you are going to argue for smaller government, argue for smaller government. If you are going to argue for bigger government, argue for bigger government. Lawmakers, though, tend to use deficit reduction as a cloak for policies they would support anyways.
Despite the improved near-term outlook, the CBO warns of “serious negative consequences” if Washington does not address the long-term deficit problem. “It takes a little heat off, and undercuts the sense of fiscal panic that prevailed one or two years ago when the debt-to-GDP ratio was climbing,” Prakken told the New York Times. “These revisions probably release some pressure to reach a longer-term deal, which is too bad, because the longer-term problem hasn’t gone away.
But there was never really any pressure to reach a longer-term deal. We have yet to have an honest discussion about the challenges facing our country. Until we do, and until Washington shifts its focus to the problems that really matter, all that we should be expected is further bipartisan deficit peacocking.