Guide to the Mid-Session Budget Review

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Exciting! Well, actually, if that doesn’t sound exciting note that according to the Center on Budget and Policy Priorities’ James Horman it’s actually even less exciting than you might thing. Next week OMB and CBO will release new deficit estimates and people will try to argue a lot of points based on them. But in fact:

1. Both reports will undoubtedly show that this year’s deficit will be the largest since the end of World War II, relative to the size of the economy. This is no surprise.

2. There will be no simple answer to the question of whether the new projections are bigger or smaller than was expected earlier this year.

3. Whether the new estimates exceed the highest previous estimate for the year will likely depend on the amounts recorded for a particularly volatile category of spending: assistance to troubled financial institutions.

4. The new projections won’t provide any evidence about whether the stimulus legislation is working or whether Congress and the President should continue to pursue health care reform.

5. The only clear conclusion that should be drawn from the new deficit estimates is the continued need for action on long-term deficits.

How to deal with long-term deficits is, of course, complicated and controversial. And yet it’s also in a way quite simple. We need to reform health care to slow the cost growth of Medicare and Medicaid. We need to steadily reduce defense spending as a share of GDP. We need higher taxes. And we need to reform the tax code to make it more efficient so that the higher taxes are economically viable. Given continued economic growth, future Americans will enjoy both more public services and more private consumption than current Americans. The politics, of course, is a different and more difficult matter.