Our guest blogger is Michael Linden, Director of Tax and Budget Policy at the Center for American Progress Action Fund.
We’re now just about one month away from the deadline for raising the debt ceiling and the negotiations don’t seem to be going all that well. Congressional Republicans still seem willing to risk all of the really really really dire consequences of hitting that ceiling if they don’t get their way. They are demanding massive spending cuts in return for their votes to raise the limit, and they say they won’t accept even one penny of additional revenue.
Without these spending cuts, they say, the debt will explode to dangerous levels, and that crashing the economy back into a recession is an acceptable risk to take to avoid that outcome. But interestingly, last week the Congressional Budget Office released its official projections of the country’s long-term fiscal situation, and under its baseline assumptions, the nation’s debt is actually very manageable.
It rises from about 70 percent of GDP now to 85 percent by 2036 and 87 percent by 2040. And from there it stabilizes and then actually begins to decline. So why the freak-out over the debt? Because most people don’t believe that the CBO’s baseline assumptions are particularly realistic. The baseline scenario assumes that future budgets will hew to current law — with the Bush tax cuts expiring, for example — and that doesn’t seem likely given the current political situation.
Fortunately, the CBO also calculates what will happen to the national debt if instead of following current law, the federal budget sticks roughly to current policies — extend all the Bush tax cuts, preempt scheduled cuts to Medicare doctors, and refuse to implement the cost savings in the Affordable Care Act. Under that set of assumptions, debt does grow dramatically. By 2036, it would approach 200 percent of GDP. Not good.
But the main reason that the debt spirals up and out of control in that alternative scenario while not doing so in the baseline scenario is revenue. In fact, fully three-quarters of the difference between the debt in the baseline and the debt in the alternative is the result of much lower revenue in the alternative. Higher spending only accounts for one-quarter of the additional debt:
This puts the lie to the frequent Republican refrain that we “have a spending problem, not a revenue problem.” In fact, we have a serious revenue problem. If we continue under current revenue policies, we really will have a debt crisis. On the other hand, if we stick closer to current law revenue levels, we can actually stabilize the debt without having to make damaging cuts to Medicare, Medicaid and Social Security.
Of course, the eventual solution to our budget dilemma is going to include both spending restraint and revenue increases. CAP has already described what that might eventually look like. But for now, it’s past time that Republicans put away the false, and misleading, talking point that revenue has nothing to do with our debt troubles.