The Congressional Budget Office released its 2014 Long-Term Budget Outlook (PDF) on Tuesday and the headlines told a familiar story. “U.S. risks fiscal crisis from rising debt,” MarketWatch blared. The Hill said, “CBO says US deficit levels are unsustainable.” Politico’s headline was more confusing than apocalyptic: “CBO: Dark skies head for deficits?”
Of course, those are all correct. Absent government action, our debt will rise to unsustainable levels in the near future. The new report projects that debt will rise to 80 percent of GDP by 2025 and 108 percent by 2040—and that’s assuming sequestration remains in effect and Medicare physicians take a steep payment cut next April. Using more realistic assumptions, debt rises to 89 percent of GDP by 2025 and 170 percent by 2040. No matter how you look at it, that’s not good.
This is nothing new. CBO’s updated projections are only slightly worse than those in its 2013 budget outlook. The question, as always, is what we intend to do about it.Want QEDaily delivered by email every morning? Sign up here!
If you’ve followed the budget negotiations over the past few years, you know the contours of the current debate. Democrats want a mix of new revenues and spending cuts. Republicans are demanding spending cuts alone. (Remember in 2012 when all eight Republican presidential candidates rejected a hypothetical grand bargain with $10 in spending cuts for every $1 in increased revenue?)
The CBO report demonstrates that Democrats are right on this issue. Buried in the report is a breakdown of why spending on federal health care programs and Social Security is growing so quickly. The main culprit? An aging population. Only 24 percent is due to excess cost growth. In other words, even with a dramatic slowdown in health care spending—altogether not impossible—we will still have a long-term debt problem.
That leaves few good options: We could make severe cuts to Medicare and Social Security. But that would undo decades of success in reducing the poverty rates for seniors. We could make severe cuts elsewhere. But all other federal spending outside of interest payments—from the military to food stamps to agricultural subsidies—is projected to decline to a smaller share of GDP than at any point since the late 1930s. There is little room to cut there without causing serious damage.
That leaves one other option: higher revenues. Not just slightly higher revenues, but a lot higher. Until Republicans accept that, there will be no grand bargain. Count me as someone who still thinks that we’re years away.
Things to know
IMMIGRATION: Border Patrol released Jose Antonio Vargas from detention along the border yesterday, with a notice to appear in immigration court because he was "not a threat." In a statement, Vargas said the rest of the undocumented immigrants in the country "are not a threat either." (Julia Preston, New York Times)
ECONOMY: At Five Thirty Eight, Ben Casselman explains why June's "disappointing" retail sales were actually good news. Recovery summer continues.
G.M.: General Motors refused to answer questions from regulators regarding the causes of fatal accidents, even though it had internal reports that concluded that the cars most likely lost power. (Rebecca R. Ruiz and Danielle Ivory, New York Times)
Things to read
Family policy: Jonathan Chait passes on the heartwrenching tale of a mother who was arrested for letting her daughter play outside while she was working. Chait relates this to a similar decision he made just a few weeks ago. (New York Magazine)
Is it fair to say Miami is drowning? First, The Guardian ran a story saying that Miami is drowning from rising sea levels. Time's Michael Grunwald responded, taking issue with this kind of "yellow climate journalism" and arguing that the exaggeration hurts the cause for climate action. But Joe Romm of Climate Progress disagrees, because "everyone in Miami needs to understand that the city simply is not going to exist" in a world where it's business as usual.
Right-wing myths: At the Daily Beast, Amanda Marcotte explains that it's very rare for women to "cry rape" after consensual sexual activity.
Things to watch
Federal Reserve Chair Janet Yellen testifies before the House Financial Services Committee. In the afternoon, the Senate will vote on legislation to effectively undo the Supreme Court's Hobby Lobby decision.
Things at QED
Henry Aaron explains the basics of the deficit and why we shouldn't be that concerned with it right now. That Republican talking point that we're spending $60,000 to deport the unaccompanied minors? Rebecca Leber explains why you shouldn't believe it.