- The Washington Times - Wednesday, June 22, 2011

Inside the latest long-term budget analysis from Congress’ chief scorekeeper is a stunning bit of news: If Congress did nothing, the government’s deficit problems would be mostly solved.

The pain required to leave government on autopilot would be severe: Taxes would rise from about 15 percent of the economy to 23 percent by 2035 as the Bush tax cuts expire and the alternative minimum tax bites half of all taxpayers. Meanwhile, basic domestic spending would drop precipitously.

But the Congressional Budget Office, in its latest long-term budget outlook, released Wednesday, said that do-nothing scenario would leave the government’s ledger in primary balance by 2017.

That contrasts with CBO’s more anticipated alternate scenario, in which Medicare and Social Security spending continue apace, and Congress - following the same path it has taken in recent years - extends popular tax breaks past their expiration dates, while again delaying promised spending cuts.

“Under CBO’s alternative fiscal scenario, revenues would increase much more slowly than spending, and debt held by the public would balloon to nearly 190 percent of GDP by 2035,” CBO said, adding that interest on the debt, which today accounts for about 1 percent of the economy, would reach a staggering 9 percent by 2035. “Such a path for federal borrowing would clearly be unsustainable.”

Congress has peppered the federal budget with spending and tax cuts it passes as temporary items, but which repeatedly get extended. That has led CBO to begin issuing two forecasts: one, called the “baseline,” that follows the law as it’s written, and the other “alternative fiscal scenario” that is more in line with what analysts think Congress would do if left unchecked.

The reality is likely to be different from either scenario, but together they bracket the challenges facing lawmakers.

Under the baseline scenario, revenue and spending would equalize later this decade, and the government would run a primary budget surplus - meaning all costs except interest on the debt - by the middle of the century.

Under the more realistic alternate scenario, revenue never goes above 18 percent of gross domestic product while spending steadily rises to account for more than 30 percent of the economy by later this century.

Lawmakers said the lesson of the report is that Congress won’t be able to keep its promises to everyone.

The figures were released as the government maxed out its borrowing ability, and Vice President Joseph R. Biden and congressional leaders are trying to hash out an agreement that would raise the debt ceiling while bandaging the broken budget.

Republicans say the problem is overspending and want limits on future expenses. Democrats, meanwhile, say the government must get more revenue to be able to pay on its promises.

In December, those two forces came together on a bill that temporarily extended the Bush-era income-tax cuts and also increased spending for unemployment benefits, though at the cost of deeper short-term deficits.

Budget hawks said those kinds of deals are now untenable.

“Many of our leaders have been hoping that if they avoid the difficult decisions for long enough, the problem will fix itself. Today’s numbers once again disprove this theory,” said Steve Bell, senior director of the economic policy project at the Bipartisan Policy Center. “Spending remains near its highest point as a percentage of the economy over the past 60 years, while revenues similarly remain near their lows. Clearly, this mix of fiscal policy is impossible to maintain.”

Yet both sides on Wednesday seemed to dig in.

Republicans said CBO’s numbers confirm their sense that the problem is on the spending side.

“There has never been a more urgent time to stop spending money we don’t have,” said House Majority Leader Eric Cantor, Virginia Republican.

Democratic senators, though, said they will push for more economic stimulus in the short term, including more infrastructure spending, in order to try to right the job market.

Senate Majority Leader Harry Reid, Nevada Democrat, said he has asked for ideas from senators by Aug. 1, setting up a late-year push.

“We’re seeking policies to build roads and bridges and dams and water systems and sewer systems, to create clean-energy jobs, to provide tax incentives for businesses to hire new employees,” he said. “They’ve been proven to create jobs in the past.”

Among the scarier parts of the Wednesday report is a warning from CBO that as bad as things look, they could be worse.

That’s because CBO said it can’t precisely account for the grim economic effects of debt or any tax increases. But CBO said under the alternate scenario, real gross domestic product could be lower by as much as 18 percent in 2035.

• Stephen Dinan can be reached at sdinan@washingtontimes.com.

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