Deficit danger worse than we know
At a donor event at Mar-a-lago recently, President Trump said, “Who the hell cares about the budget?” Indeed, with budget deficits on his watch tipping into the trillions, Trump does seem not to care. Gone are the days when Republicans would criticize profligate spending as they did during the Obama years. Within days of Trump’s devil-may-care question, the Congressional Budget Office, charged with producing forecasts of the economy and federal budget, projected trillion dollar deficits for the foreseeable future.
Congress needs unbiased analyses when it comes to budgetary concerns, even if the president is on record as not caring. But, of its 187 forecasts, 80% over-predicted federal revenues, 60% under-predicted federal spending, and 80% under-predicted the debt. CBO predictions are biased in a decidedly rosy direction.
When the CBO forecasts tax revenues 10 years into the future, its prediction is typically 26% too high. When it forecasts federal spending 10 years into the future, its prediction is typically 10% too low. Add up all those “rosy in both directions” errors, and the CBO ends up with deficit projections that are much rosier than reality. And those deficits accumulate into much more future debt than what the CBO forecasts.
Knowing these numbers, we can adjust CBO’s predictions by its average historical error to determine what is more likely to happen.
In the CBO’s latest report, it predicts that the deficit will rise from $1 trillion today to $1.4 trillion by 2029. If this prediction is as rosy as previous predictions, we can expect the deficit actually to hit $2 trillion by 2024, and in excess of $3 trillion by 2029.
The CBO projects the debt will be $34 trillion by 2029. Adjusting for its average historical error, we can expect the debt to be almost $50 trillion by that time. If that sounds unbelievable, note that in 2009, the CBO projected that the debt today would be $16 trillion. In fact, the debt — now $23 trillion — crossed the predicted $16 trillion mark seven years ago.
What lies at the end of this seemingly endless parade of spending is something anyone can predict: insolvency.
Antony Davies is associate professor of economics at Duquesne University. James R. Harrigan is managing director of the Center for the Philosophy of Freedom at the University of Arizona.
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