Even relentless warnings don’t mean anyone listens, at least on Capitol Hill.
Last week, the Congressional Budget Office released the results of some new and ugly math. Tax increases plus huge budget cuts equal a recession, starting in a few months.
The alternative, however, is no better.
Tax cuts won by President George W. Bush are due to expire at the end of the year, along with the two-year-old Social Security tax relief that was part of President Barack Obama’s stimulus efforts.
At the same time, $1 trillion in federal budget cuts — spread over 10 years — are set to begin as part of Congress’ cowardly deal to trim federal spending by not actually making decisions.
The combination of tax increases and budget cuts would lower the federal debt considerably, by $7 trillion over 10 years. But the immediate result, according to the CBO, would be a national economy shocked into a new recession:
“Such fiscal tightening will lead to economic conditions in 2013 that will probably be considered a recession, with real GDP declining by 0.5 percent between the fourth quarter of 2012 and the fourth quarter of 2013 and the unemployment rate rising to about 9 percent in the second half of calendar year 2013.”
Without the double whammy, the CBO says the deficit would again top $1 trillion in 2013, but the economic picture would be better, at least immediately: “Real GDP would grow by 1.7 percent between the fourth quarter of 2012 and the fourth quarter of 2013, and the unemployment rate would be about 8 percent by the end of 2013, CBO projects.”
Lest people think Keynesian economists have taken over in the nonpartisan agency, the CBO projects that between 2014 and 2017, the double whammy leads to average GDP growth of 4.3 percent, considerably better than at any time since the late 1990s.
A deal that continues the tax cuts and avoids most budget cuts may be less painful in the short-term but has long consequences for the nation’s economic health.
“(T)he persistence of large budget deficits and rapidly escalating federal debt would hinder national saving and investment, thus reducing GDP and income relative to the levels that would occur with smaller deficits.” Interest rates would climb, the federal debt would balloon and the next fiscal cliff would approach.
The CBO’s alternatives may be an artificial, all-or-nothing construct, but it does provide insight that Congress has been desperately trying to avoid: Republicans who refuse to consider tax increases and Democrats who refuse to make meaningful budget cuts both drive the nation toward economic disaster. The difference is when the trouble would arrive.
U.S. Sen. Mark Warner, along with a handful of legislators, has been singing this song for years. But it’s been hard to hear over the loud-mouthed incompetence that has paralyzed Congress.
“Any business leader or elected official who says they didn’t see this coming,” Warner said, “is playing with fire.” Not to mention with the economic future of the nation.
— The Virginian-Pilot