• Tag Archives CBO

  • The Congressional Budget Office Can’t Count

    Posted on by Azrael 1 Comment

    The Congressional Budget Office Can’t Count

    The Congressional Budget Office just released their national debt prediction for the upcoming decade, and it’s not good. Assuming the government does not add any new costs, the CBO is expecting another $10 trillion to be added to the current debt, raising the total to $30 trillion.

    But as bad as that is, the reality will likely be even worse. The CBO has historically underestimated future debt by a huge margin. Judging by their past optimistic errors, the real debt in 2027 will likely not be $30 trillion, but $75 trillion.

    The next decade’s tax situation will be similar. The CBO is predicting that the government will collect $5.1 trillion in taxes in 2027, but, again, their tax predictions have been consistently wrong. The real number will most likely be closer to $4.1 trillion, which is a good thing for taxpayers but bad for the deeply indebted government.

    And it keeps going. Assuming interest rates don’t change between this moment and 2027, the government will owe about $2 trillion in interest alone. However, interest rates are already starting to go up, and the CBO thinks they’ll be much higher in 2027. Even if rates don’t rise above the historical average of 6 percent (versus our current rate of 2.5 percent), the annual interest rate will consume 75 cents of every tax dollar.

    A version of this story first appeared on US News.


    Antony Davies

    Antony Davies is an associate professor of economics at Duquesne University.

    He is a member of the FEE Faculty Network.

    This article was originally published on FEE.org. Read the original article.


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  • Bernanke to Congress: We’re Much Closer to Total Destruction Than You Think

    Posted on by Azrael Comment

    Official Congressional budget estimates understate the peril of rising debt, Fed chair Ben Bernanke told the Budget Committee on Capitol Hill today.

    Warning that our nation’s fiscal health has deteriorated appreciably since the onset of the financial crisis and the recession, Bernanke called upon lawmakers to confront the long term fiscal challenges sooner rather than later. If lawmakers don’t confront them, they’ll find themselves confronted by them.

    From Bernanke’s prepared remarks:

    By definition, the unsustainable trajectories of deficits and debt that the CBO outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit. One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will come as a rapid and painful response to a looming or actual fiscal crisis.

    Bernanke explained that the Congressional Budget Office’s calculations miss an important reality. As the government’s debt and deficits rise, the economy will slow down—an effect not taken into account by the CBO. So, for instance, when the CBO says that federal spending for health-care programs will roughly double as a percentage of GDP in the next 25 years, it is probably being too optimistic. If debt keeps, rising, GDP will be much lower than the CBO estimates—which will mean that health care spending will be a much larger percentage of the overall economy.

    Full article: http://www.cnbc.com/id/41491193/


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