20120809_BROKE_DEBT_LARGE

Sometimes, it is just smarter (and easier) to let people who are smarter than you explain complicated things.

Such is the case with Chuck Blahous, a long-time friend from Washington DC who is now a trustee on the Social Security and Medicare Trust Fund.

We were about to plow through the CBO update on long-term economic and budget projections that came out yesterday when we saw Chuck’s summary come in our email inbox.

CBO reported that ‘deficits would fall below $1 trillion!’ for the first time in four years. People from the White House on down, including the President, seemed to want to bask in the warm sun of accolades and congratulations from an adoring public and news media for a ‘job well-done’.

We feel like this is premature celebration at best. Primarily because there are plenty of caveats and ‘what-ifs’ and ‘what-fors’ in the CBO report to make it highly unlikely that anything substantial has been accomplished in the first four years of President Obama’s tenure in the White House regarding the budget deficit.

Celebrating the $845 billion deficit today is a lot like the fans of Western Kentucky storming the court in the First Four play-in games of the NCAA basketball tournament in 2012 after their scintillating late-game comeback over Mississippi Valley State. They got blasted by eventual champion Kentucky two days later.

Chuck has written an in-depth report about the CBO recent projections. We have printed his very good summary below and hope it will shed some light on the larger CBO report that we hope you will read yourself as well. It is only 72 pages; once you read it, you will know more about our budget deficit and debt problem than anyone you will listen to on talk radio or or watch on cable tv.

‘#1: Federal debt is projected to grow faster than the economy can sustain. Federal debt has risen dramatically relative to our economic output. In President Bush’s last full year in office, federal debt was 40.5% of GDP. This year it’s 76.3%. CBO’s latest projections indicate that under current law not only will we fail to bring federal debt back to historical norms, but that it will ultimately rise faster than the economy can sustain.

#2: It’s probably worse than that. If lawmakers override Medicare physician payment cuts as they have in the past, and if they also extend certain expiring provisions of tax law as well as override the so-called “sequestration” spending cuts, federal debt will grow out of control even faster – reaching 87% of GDP by 2023 as opposed to the 77% shown.

#3: The problem is not a lack of tax revenue.  By 2015 federal tax revenues will hit 19.1% of GDP, taking a tax bite from the economy well exceeding the historical average of about 18%.