As our members of Congress engage in their ridiculous fiscal tiff, we the public should bear in mind the huge problem this melodrama is concealing. Our country is flat out broke. And it’s not broke in 30 years or 15 years. It’s broke today.
Unfortunately, you wouldn’t realize this from the Congressional Budget Office’s recently released long-term budget forecast, which entirely whitewashed our fiscal future. This forecast assumes current law remains in place, including provisions such as cuts in Medicare and Medicaid doctor reimbursements, which no one, including the CBO, views as realistic.
In past years, the CBO simultaneously released what it calls its Alternative Fiscal Scenario, a more realistic forecast of what the CBO thinks will happen, absent a truly dramatic and sustained shift in budget policy.
Those of us who track budget policy eagerly await each year’s release of the alternative scenario. This year, however, it was nowhere to be seen when the CBO released its long-range forecast. Fortunately, enough people started asking what happened to the alternative scenario. Two days later, it was added as “Tab 6” in the CBO spreadsheet, with no accompanying press announcement or press attention.
The official and alternative forecasts differ dramatically. Based on the official forecast, the long-term budget gap is $47 trillion. But based on the alternative, the gap is — $205 trillion! Hence, in presenting a picture of our nation’s long-term fiscal imbalance based on the official forecast, the CBO, in effect, understated the problem by three-quarters!
Official CBO figures understate the extent of the problem by up to three-quarters.
The $205 trillion fiscal gap is enormous. It corresponds to 10 percent of the nation’s economic output year in and year out for as far as the eye can see. To raise such a sum, we could a) raise all federal taxes, immediately and permanently, by 57 percent, b) cut all federal spending, apart from interest on the debt, by 37 percent, immediately and permanently, or c) do some combination of a) and b).
Have you been hearing the president or the speaker of the House discussing our true fiscal gap let alone fiscal adjustments of this kind? Not a word. Thanks to the CBO and their handlers, they probably haven’t even learned the true state or our nation’s insolvency.
So, it seems, we will wait. And waiting will make things worse. Say we postpone action another 20 years, letting current older generations, including very rich, older Americans, off the hook and, starting in 2033, finally begin to close of fiscal gap. This would require d) permanently raising taxes by 69 percent, e) permanently cutting all non-interest spending by 43 percent, or f) doing some combination of d) and e).
There are other, less blunt and painful ways to get our fiscal house in order, but we’re not going to begin having that national discussion until we get honest and timely disclosure of our true fiscal condition.
Fortunately, Senator Tim Kaine, Democrat of Virginia, and Senator John Thune, Republican of South Dakota, have introduced a bill mandating this disclosure. It’s called The Inform Act and requires the Congressional Budget Office, the General Accounting Office, and Office of Management and Budget to do long-term fiscal gap and generational accounting on an annual basis and in advance of congressional voting on all major tax and spending bills.
Generational accounting shows the taxes today’s and tomorrow’s children will need to pay if they are left, on their own, to close the entire fiscal gap.
To date, 14 Nobel laureates in economics and more than 1,000 other economists, as well as thousands upon thousands of other American citizens have endorsed the bill.
Economists don’t often agree on what drives the economy or how to fix it. But these economists, who span the political spectrum and represent all parts of the academic and business worlds, are speaking with one very strong voice demanding honest government disclosure and accounting of our long-term fiscal obligations as well as the economic threats they pose to our children.
Laurence Kotlikoff is a professor of economics at Boston University and coauthor of “The Clash of Generations.”