February 7 2013

CBO: Winter of Our Discontent

Emily Wismer

 

We're heading for a winter of discontent--followed by a spring, summer and fall of discontent. That's clear if you read the latest economic and fiscal projections from the non-partisan Congressional Budget Office (CBO). It is clear to this reader that this abysmal financial picture is the result of many bad decisions in Washington.  

The CBO report has terrible news for job seekers. It indicates unemployment will hover stagnantly at 8 percent for the rest of this year.

Despite years of debate over how to lower federal spending, the federal debt is expected to balloon over the next few years thanks to historically high government spending. Assuming the sequester is enacted (which is a risky assumption), federal spending will still be 21.5 percent of the economy in 2017, higher than its 40 year average. And if the sequester is delayed (which is a safe assumption), that number will be much higher.

Interest rates on the federal debt will increase substantially in the next few years. So much so, that the CBO reports, “Higher costs for interest will eventually require the government to raise taxes, reduce benefits and services, or undertake some combination of those two actions.” 

In other words, projected debt increases will not only reduce lawmakers abilities to spend on things that matter (like transportation, defense, etc.), but they also could lead to investors would losing confidence the U.S. will be able to pay back any debt we borrow, making the interest we pay on borrowing go even higher.

So what are the drivers of increases in spending? According to the CBO increased healthcare costs, an aging population, and federal subsidies for health insurance. Yet so far, the Administration and Democrat-controlled Senate have failed to present solutions to these ballooning expenses.

It’s no secret that businesses are scared to hire. Business leaders have spent the last few years concerned they will be paying more in taxes and uncertain of their future financial capabilities. Unfortunately, their fears were substantiated in January when Congress substantially raised taxes on our nation’s job creators.

Despite massive increases in the debt, federal revenue (i.e. taxpayer dollars) is expected to grow by a whopping 25 percent in the next three years due to the fiscal cliff deal (which raised taxes for the average person by over $1,000) and several provisions in the Affordable Care Act.

Any reductions in the deficit that will occur will be largely due to more tax revenue, not spending cuts. It makes little sense for the President to demand more revenue from job creators who are struggling when the IRS is already going to be given a massive increase in funds.

Are you seeing a common threat here? Yes, all these problems were created by policies and the politicians who love them. 

 

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