CBO Projects U.S. Deficit Outlook

What if Congress did nothing about the deficit for the next two years? Believe it or not, the long-term debt of the U.S. would become much more manageable.

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The debt deal reached by Congress and the president earlier this month could end up taking a big bite out of the nation's ongoing deficits. That's according to new projections from the non-partisan Congressional Budget Office. But the CBO's projections are based on certain assumptions, including the expiration of the Bush-era tax cuts. And as NPR congressional reporter Tamara Keith tells us, those assumptions may be far from realistic.

TAMARA KEITH: A couple of times a year, Doug Elmendorf, the head of the Congressional Budget Office, presents an estimate of where the economy is headed and what that means for the budget deficit. This latest update incorporates the debt deal.

Mr. DOUG ELMENDORF (Congressional Budget Office): We estimate that the Budget Control Act reduces deficits over the coming 10 years by about $2.1 trillion.

KEITH: But there's a catch. These projections also assume that current law will remain in place. And current law says all the Bush tax cuts expire, the Obama payroll tax holiday goes away, doctors will see Medicare reimbursements slashed and an increasing share of Americans will have to pay the alternative minimum tax.

It's hard to find anyone who expects Congress to allow all these things to actually happen. And Elmendorf says that would change the deficit picture.

Mr. ELMENDORF: Extending all those expiring tax provisions would widen budget deficits relative to our baseline projection by trillions of dollars.

KEITH: Five trillion dollars. Robert Bixby is a professional deficit watcher, as executive director of the Concord Coalition.

Mr. ROBERT BIXBY (Executive director, Concord Coalition): There is a broad, bipartisan agreement that a lot of the things that would make the budget look a lot better aren't going to happen.

KEITH: Or in other words...

Mr. BIXBY: If Congress just went home, the budget would be in a lot better shape, because right now, they've put in place tax cuts that expire and spending cuts that happen automatically. And so if they'd make no further decisions, the budget would be in, you know, pretty good shape by the end of the decade.

KEITH: Bixby doesn't think this is the best way to run a government. But he does say the deficit would be smaller if Congress left well enough alone. But will it?

Mr. BIXBY: Certainly, it's at odds with how Congress has conducted itself over the past few years, but therein lies the problem.

KEITH: In comes the supercommittee. This is the committee of 12, created as part of the debt deal to find more deficit reductions. If the committee wants to keep some of those tax cuts, it's going to have to find additional deficit reductions elsewhere.

Ms. ALICE RIVLIN (Brookings Institution): This is a big chance to actually fix things.

KEITH: Alice Rivlin is a senior fellow at the Brookings Institution. She says she'd like to see the committee reduce the growth of debt over time by rewriting current law in a number of areas.

Ms. RIVLIN: If they're courageous, they will institute significant reforms in Medicare and - I hope - Social Security that will not come into effect right away, but will reduce the growth of spending some years in the future.

KEITH: But that's not all she wants to see.

Ms. RIVLIN: Reform the tax code so we can raise more revenues over time from a fairer, simpler tax code.

KEITH: For policymakers, though, there's another more pressing issue to consider: the economy. The CBO projects the unemployment rate will stay above 8 percent until 2014. Any moves to reduce the deficit could affect the economy. Elmendorf says it's possible to boost the economy now and still cut the long-term deficit. But he also says it's not the CBO's job to tell Congress what it should do or how to do it.

Tamara Keith, NPR News, the Capitol.

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