If it wanted to, the United States Congress could easily solve the government’s long term fiscal gap by doing what it does best: nothing.
According to a new report from the non-partisan Congressional Budget Office (CBO), the United States federal government debt is projected to peak in 2015 and then drop substantially over the coming decades, all by itself if Congress can just sit on its hands and stop handing out tax breaks to individuals and corporations.
Unfortunately, Republicans are bent on extending all of the Bush tax cuts, which the CBO found earlier this year will add $5.4 trillion to the debt in the next decade alone.
And the Democrats proposals aren’t much better. President Obama’s proposal to extend the tax cuts for the first $250,000 a family makes and the first $200,000 a single person makes would actually result in an extension of 78% of the Bush tax cuts and would cost $3.5 trillion in the next decade. (This is still preferable to House Democratic Leader Nancy Pelosi’s proposal to extend the tax cuts for the first $1 million of income a family makes.)
Congress should, however, increase the budget deficit temporarily if the result will be greater economic growth. But extending the Bush tax cuts would provide very little boost in economic output (compared to proven measures like increased unemployment insurance, food stamps or other types of spending programs).
What Really Would Drive Us Off a Fiscal Cliff
The CBO looked at a few scenarios, including one called the “extend alternative fiscal scenario,” in which Congress extends tax cuts and repeals spending cuts. The result of this one would be the federal debt spiraling out of control, indefinitely. In contrast, CBO’s “baseline scenario,” the scenario in which Congress does nothing, leads to our public debt stabilizing (and slightly falling) after 2015.
Now, there are several people and organizations who’ve made a fetish of reducing the deficit and that focus on spending cuts as the path to a balanced budget. One of the most famous, of course, is Pete Peterson, who runs a foundation, organizes national tours and subsidizes the Committee for a Responsible Federal Budget all in the name of his definition of fiscal responsibility, which means cutting Social Security and Medicare, for starters. Peterson recently contributed an astonishing $458 million to his own foundation, and hosted a recent Fiscal Summit which featured Bill Clinton, John Boehner, Tim Geithner, Paul Ryan and more journalists than we want to think about.
And indeed, much of the media has accepted this distorted vision of our fiscal situation. Consider a recent news headline about the same CBO report: “US Risks Fiscal Crisis Without Budget Changes, CBO Says.” The CBO actually said the exact opposite.