Congress‘ chief scorekeeper warned Wednesday that the country’s top lawmakers can’t continue to put off big decisions on the budget and the economy much longer, and said either path — belt-tightening now or even deeper cuts later — will be painful.
The Congressional Budget Office, which released its annual August update, said the deficit for fiscal year 2012 is pretty much set at more than $1.1 trillion — the fourth straight year of trillion-dollar deficits, dating back to the end of President George W. Bush’s term and covering all of President Obama’s 3½ years in office.
Now, Congress and Mr. Obama are grappling with 2013 and beyond, and CBO said their options range from immediate belt-tightening and a double-dip recession that clears the economic and fiscal air, to continuing to pump money into the economy and delay, but likely worsen, an eventual reckoning.
Even if the economy picks up, he said, the government will run major deficits over the decade, meaning the fiscal imbalance is caused by the spending promises that the government has made outstripping the amount of money it’s likely to raise in taxes.
“At some point, we will need to adopt policies that require people to pay significantly more in taxes, accept substantially less in government benefits and services, or both,” Mr. Elmendorf said.
With the Bush-era tax cuts expiring at the end of this year, and with automatic spending cuts looming Jan. 2, Congress has about four months to decide which direction it will go.
But lawmakers in Washington, and voters across the country, remain gridlocked. Democrats say the key to rebalancing federal books is to raise taxes, and Republicans say cutting spending will do the trick.
With neither side ready to concede, that has meant every major deal over the past two years has ballooned the deficit, as the government borrows money to grant more tax cuts or push through added spending.
“Instead of doing the right thing, Republicans in Washington have chosen to double down on the same failed policies that led to the economic crisis in the first place,” said White House press secretary Jay Carney.
Mitt Romney, the presumptive Republican presidential nominee, said the CBO report is “another indictment” of the president’s own plans.
As Mr. Obama blamed the GOP, Republicans said it was Democrats who were holding up solutions.
“In 2009, President Obama said, ‘I refuse to leave our children with a debt that they cannot repay,’ but CBO’s analysis shows that the president is doing just that,” said Rep. Jeb Hensarling, chairman of the House Republican Conference.
No matter when Congress acts, there will be pain.
If the government continues pumping cash into the economy over the next year, the unemployment rate will average 8 percent in 2013.
But the short-term pain is worse if the money stops altogether: Joblessness would peak above 9 percent and remain above 8 percent at least through the end of 2014.
For the past four years, as the economy has remained sluggish, all parties in Washington have agreed to put off a fiscal tightening in favor of immediate efforts to try to restore the economy.
The economy, however, has not responded well, and the fiscal problems have only deepened. CBO said the important yardstick for government debt has doubled over the past five years, from 36 percent to 73 percent of gross domestic product.
Now, the federal government faces what has become known as the “fiscal cliff” — the end of the Bush-era tax cuts and the automatic triggering of scheduled spending cuts called for in current law.
If Congress allows the tax cuts to end, the deficit would be cut to $641 billion in fiscal year 2013, or 4 percent of GDP, in what would be the biggest one-year drop since 1969.
But if Congress cancels the spending cuts and extends all of the tax cuts, the deficit would top $1 trillion for the fifth straight year.
Republicans are pushing for an extension of all of those tax cuts and for canceling the spending cuts to defense, while Democrats want to see an extension of most of the Bush tax cuts and are conflicted on how to approach the spending side.
The major difference in tax plans is that Mr. Obama has called for couples earning at least $250,000, and individuals earning $200,000 or more, to see their income-tax rates rise to pre-Bush levels.
The CBO said the difference between the GOP plan and Mr. Obama’s plan amounts to $42 billion in extra revenue next year, and $824 billion over the next decade.
Even if Congress extends the tax cuts and cancels spending cuts, the CBO projects, the economy will grow at only 1.7 percent in 2013, and the unemployment rate will hit 8.7 percent at some point, and average 8 percent for the year.