January 31, 2012

CBO Report Paints a Grim U.S. Future

Veronique de Rugy

Senior Research Fellow

Jason J. Fichtner

Former Senior Research Fellow
Summary

The CBO report released this morning will determine the CBO baseline and forecast what revenues, economic growth, deficits, and other indicators will look like over the next 10 years.

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The CBO report released this morning will determine the CBO baseline and forecast what revenues, economic growth, deficits, and other indicators will look like over the next 10 years. Mercatus scholars and economists Veronique de Rugy and Jason Fichtner weigh in.

VERONIQUE DE RUGY:

“The CBO baseline only takes into consideration current law, so it counts the savings from the expiration of provisions like the Bush tax cuts, doc fix, and AMT patch,” said Veronique de Rugy. The alternative baseline is what we should be looking at, because it’s a more realistic vision based on past experiences. The savings are not likely to materialize because we’ve been extending these types of provisions for years, and are likely to do so again.”

“Unfortunately the alternative baseline is much worse. We’re only a few years away from the biggest explosion of spending since the second world war, and Americans are in denial if they think that the situation can be fixed without radical changes,” said de Rugy. “The U.S. is headed toward bankruptcy. All we have to do is look to Europe to see what happens when countries refuse to face reality.”  

JASON FICHTNER:

“For those concerned about our fiscal future, the CBO report is usually a reality check on the cost of servicing our debt” said Fichtner. “The best case scenario is that it would stay constant or lower slightly due to a pickup in economic growth and low inflation and borrowing costs. The more likely scenario is red ink for as far as the eye can see. This means the cost of servicing our debt will begin to take over our ability to pay for what we rely on like defense, education, Social Security, and more.”

“This is the first major report of the year that shows where spending is headed,” said Fichtner. “It’s what the Congress will use as a comparison to the OMB baseline when the president releases his budget on February 13th.”