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A new report from the non-partisan Congressional Budget Office (CBO) confirms that Congress’s decision to make 85 percent of the Bush tax cuts permanent as part of the fiscal cliff deal will dramatically increase the annual deficit and the long term national debt going forward, something Citizens for Tax Justice (CTJ) has been projecting for years. In fact, the impact of the tax cuts was the biggest factor in causing the CBO to nearly double their estimate of the national debt from 52 percent of GDP to as much as 100 percent of GDP 25 years from now.
After digging all of us into this fiscal hole by passing these tax cuts, lawmakers like Wisconsin Representative Paul Ryan are using the CBO’s new, more dire debt projection to argue that it proves that “spending is out of control” and thus the solution to our fiscal problems is – wait for it – more spending cuts.
It’s become “common-sense” to argue that the federal government should immediately cut spending to reduce the deficit, but this is mistaken. Over the past two years lawmakers have already enacted enough debt reduction (primarily through spending cuts) that the CBO projects that the national debt will actually go down slightly over the next decade, going from 73 percent of GDP in 2013 to 70 percent of GDP in 2022. Even over the long term, when the debt is projected to grow substantially, “out of control” spending is not what is driving the increase that Paul Ryan is talking about.
According to the CBO, even with the much talked about growth in healthcare costs and aging of the population, total spending on federal government programs will only grow a modest 10 percent over the next 25 years. The much more dire predictions of the growth in government spending that are often cited are largely driven by the projected increase in interest payments on the national debt, an amount which the CBO expects to nearly quadruple over the next 25 years if nothing is done.
Rather than being inevitable, the good news is that this massive increase in interest payments is entirely avoidable if lawmakers modestly increase revenue, rather than letting the debt substantially increase each year in order to cover the costs of massive tax cuts that were made permanent with the fiscal cliff deal in January. In fact, the CBO estimates that revenues would only have to increase by about 4.5 percent compared to current policy to stabilize the debt over the next 25 years and substantially reduce projected interest payments. Whether it’s through ending corporate tax avoidance or reforming individual income tax expenditures, raising this modest amount of revenue could not only reduce the deficit but also have the added bonus of making our tax system more equitable as well.