Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

How bad is the long term federal budget outlook?

July 02, 2010

Awful. And that's the optimistic scenario. TaxVox reports:

Of course, no one believes that Congress will really be that disciplined. That’s why CBO offers a second vision, in which lawmakers give in to temptation. They extend the tax cuts, patch the AMT, limit bracket creep, increase payments to Medicare docs, allow discretionary spending to rise with GDP, and turn off some of the health legislation offsets after 2020.

If policymakers give in to all those temptations, the debt skyrockets, rising from about 60% of GDP today to 185% by 2035. And that’s assuming no negative effects on the economy. As my colleagues Len Burman, Jeff Rohaly, Joe Rosenberg, and Katie Lim have pointed out, out-of-control deficits would weaken the economy by crowding out investment and driving up interest rates, so the debt-to-GDP ratio would actually grow even faster.

They certainly seem in no mood to spend less of our money.