Remember the deficit? That big, bad existential issue that threatened the future of the U.S. economy and demanded an urgent, Pearl Harbor-like national response?
The deficit hasn’t gone away, but the Congressional Budget Office reported last week that it’s shrinking faster than anyone would have imagined.
The CBO’s deficit estimate for the current fiscal year of $642 billion was down more than $200 billion from its February estimate. The budget actually showed a $113 billion surplus in April.
Well, sure. April is when most people pay their taxes. Except the CBO said it expects government revenues to outpace spending for next two years.
It was just 2½ years ago that former Sen. Alan Simpson, R-Wyo., and former Clinton White House Chief of Staff Erskine Bowles proposed $4 trillion in budget cuts and new spending over 10 years to bring deficits to sustainable levels.
“America cannot be great if we go broke. Our economy will not grow and our country will not be able to compete without a plan to get this crushing debt burden off our back,” said the co-chairmen of the President’s Commission on Fiscal Sustainability and Reform.
In 2009, as the government ran huge deficits to offset the 2008 financial collapse, the deficit reached 12.3 percent of gross domestic product. The Simpson-Bowles Commission was charged with finding a way to reduce that to 3 percent of GDP. To get there fast, Mssrs. Simpson and Bowles proposed immediate cuts to bring the level to 2.5 percent of GDP by 2015.
The commission’s recommendations never made it to Congress, much less through Congress. But last week the CBO predicted that the deficit would reach 2.1 percent of GDP by 2015, beating the Simpson-Bowles goal by 0.4 percentage points.
The temptation is to say that this is what can happen when Congress and the president do as little as possible. In fact, the “fiscal cliff” budget deal reached at year’s end did raise taxes on the wealthiest 0.7 percent of households. The payroll tax cuts of 2009 were restored. Some $85 billion in “sequester” cuts went into effect in March, creating significant pain.
The CBO report said revenues have been higher that expected, thanks to a recovering economy, and Fannie Mae and Freddie Mac, the federal mortgage agencies, have been repaying bailout loans faster than expected.
The good news on the deficit could have at least two unfortunate side effects:
It masks the fact that long term, as more of the baby boom generation ages, bills for Medicare and Medicaid inevitably will outpace the revenue available to pay them.It removes any urgency for Congress and President Barack Obama to reach a “grand bargain” on tax and entitlement reform. Mr. Obama has proposed a budget that would replace further sequester cuts and lock in low deficits through most of the next decade. It would do so by raising taxes by nearly $1 trillion and reducing deductions and tax loopholes and cutting Medicare and Social Security spending.
Current spending levels, while keeping the deficits in check, aren’t doing much for job creation. The official unemployment still stands at 7.5 percent. The so-called “real” unemployment rate, counting those who have dropped out of the job-hunt, is at least 3 percentage points higher. The sequester is causing real pain. The nation would be better served by investing more in its workforce even if it meant deficits would shrink a little more slowly.
Doing nothing benefits the status quo. The Dow Jones industrial average is booming above 15,000; whatever pain is being felt at the bottom isn’t being shared at the top.
Wall Street bankers are continuing to gut the protections enacted by the Dodd-Frank financial reform bill. Shareholders of JPMorgan Chase voted Tuesday to allow Chairman and CEO Jamie Dimon keep both titles, despite regulatory problems and massive trading losses by the bank’s London offices. Profits are up, and that’s what counts. And Apple CEO Tim Cook told a Senate hearing Monday that his company had done nothing wrong by dodging billions in taxes by sheltering cash overseas.
If deficits are no longer an existential problem for the United States, income inequality is. The nation won’t solve that one by doing as little as possible.
Copyright St. Louis Post-Dispatch. Reprinted with permission.