Today’s CBO Report: What Does It Mean?

Today the Congressional Budget Office released its summer update on the budgetary outlook for the next decade. You can read the report in its entirety here, and Director Douglas Elmendorf’s commentary on the report here. The significance of the summer update lies largely in the fact that it takes into account the effects of the Budget Control Act–i.e., the debt ceiling compromise–that was adopted earlier this month.

Reporting on the CBO’s summer update has largely been positive, focusing on the fact that the report projects $3.5 trillion in deficits over the next ten years, compared with the $7 trillion it forecasted in January. As always, however, projections for the out-years are more or less meaningless. Of more immediate significance is that the FY 2011 deficit will amount to $1.3 trillion, the third trillion-dollar-plus deficit in a row. The CBO assumes, as it must, that the spending cuts mandated by the Budget Control Act will actually happen in future years, when in fact future Congresses can spend whatever they want. Moreover, as Elmendorf points out, the CBO numbers also assume that current law remains unchanged, which means that all the Bush tax cuts expire, no “doc fix” is adopted, and the alternative minimum tax is allowed to crush middle-income taxpayers. None of these things will happen.

In addition, one of the chief drivers of deficit projections is the assumption one makes about future economic growth. Today’s report projects even more anemic growth in the near future than it had predicted earlier this year, reflecting worsening economic conditions. But it makes up for those lower revenue numbers by forecasting extremely robust growth in the out-years, e.g., 6.6% in 2015, up from 5.5% in its January report. I have no idea what has happened since January that would justify a more optimistic assumption about GDP growth in 2015; the reality is that both of those numbers are arbitrary and probably unrealistic.

So there is no reason to take significant comfort from today’s report. Budget deficits are being racked up at what everyone admits is an unsustainable pace. And, as Elmendorf writes, nothing has been done to reform entitlement programs that, if left in their present form, “will cause federal debt to skyrocket.”

News outlets, naturally, have spun the CBO report in their preferred directions. One of the least subtle is the New York Times:

It comes as Mr. Obama and Democrats, like many economists, are calling for a mix of larger long-term deficit-reduction measures with immediate additional job-creation measures.

Got that? The Democrats’ position is supported by “many economists.” We know, however, that most economists favor the Republicans’ position that the budget should be brought into balance mostly or entirely through spending cuts, which the Democrats bitterly oppose.

While the latter would add to deficits in the short term, proponents argue that they would prevent another recession and avoid the associated costs in lost revenues and safety-net spending. But Republicans oppose any stimulus measures or long-term increases in tax revenues.

The Times sets out the Democrats’ rationale for more “stimulus” as though it makes sense, but offers no explanation of why those obstructionist Republicans would oppose such measures–like the fact that the first stimulus was a complete failure, and more “stimulus” is synonymous with more debt and, many argue, fewer jobs. Note, too, that the Times misstates the Republicans’ position: “Republicans oppose any…long-term increases in tax revenues.” What Republicans oppose is increases in tax rates. Increases in tax revenues will come from economic growth, which the Obama administration and Congressional Democrats are vigorously suppressing. As Marco Rubio put it, we don’t need new taxes, we need new taxpayers.

But that sort of distortion is all in a days work for America’s worst newspaper.