The Congressional Budget Office released on Friday its preliminary analysis of President Barack Obama's 2012 budget proposal, and projected cumulative deficits of $9.5 trillion over the next decade. That was $2.7 trillion higher than the CBO's pre-budget prediction and $2.3 trillion higher than the administration's own estimate.
These budget projections underscore a simple accounting truth: The federal government needs to raise revenues through increased taxes or make politically impossible cuts to programs like Social Security or to defense spending. But the truly shocking development of recent days, and one that's been nearly completely ignored by the news media, is that several prominent Republicans are among the few willing to acknowledge that taxes must be raised. It's the first break with the GOP's guiding orthodoxy since President George H.W. Bush agreed to raise taxes 20 years ago.
Though other Republicans have hinted they're willing to compromise in the current budget debate, the three on record are Sens. Tom Coburn and Mike Crapo, and former Sen. Judd Gregg. These were the three Republican commissioners who voted in December for the Fiscal Commission's final proposal, which proposed eliminating many individual tax breaks, treating capital gains as ordinary income, and raising the taxable income cap for Social Security. Though the commission's plan also lowered some marginal tax rates, many people would still have seen a net tax increase.
A few prominent conservatives criticized the senators after the commission's December vote for breaking the de facto Republican oath, but their stance, and basic math ability, has largely gone unnoticed. But there should have been more attention paid to this necessary attempt to fundamentally shift the budget debate.
Why must Congress either raise taxes or cut popular programs to balance the budget? The CBO's aforementioned budget analysis, the latest in the long line of grim projections from the agency, predicts that the federal budget deficit will remain deeply negative throughout the next 10 years. It will dip to a low of only 4 percent of GDP, or $764 billion a year, before rising again at the end of the decade. The deficit is fueled by projected increases in mandatory spending, mostly Social Security, Medicare, and Medicaid, which grows at a rate significantly faster than GDP. Discretionary spending, including military spending, is actually expected to decline as a share of the economy.
Government revenues will recover from their near historic low this year, but they won't rise enough to cover the projected increases in spending. These revenue projections are significantly lower than past ones largely due to the extension of the Bush tax cuts proposed by the administration and enacted by Congress in December, which the CBO estimates will cost $2.3 trillion over the 10-year period.
If Congress wants to stabilize the federal government's level of debt, which nearly every economist will argue is necessary, the deficit must be kept below 3 percent of GDP, the generally agreed-upon average future growth rate of the U.S. economy. (And thus the rate at which we can "grow" ourselves out of debt.) If Congress wanted to act now to stabilize the deficit at that level without raising taxes, they would have to cut about $4.5 trillion in total government spending over the next decade. That comes to $450 billion a year. This is simply impossible to achieve by cutting only non-defense discretionary spending -- that's the spending the president and Congress are currently targeting -- which will average only $550 billion a year. That is, unless Congress were willing to eliminate practically every government program except Social Security, Medicare, Medicaid, and the military.
That's the stark reality. Either move beyond cuts to non-defense discretionary spending and cut into one of these essential, popular government programs, or raise taxes. The most recent Washington Post poll on the deficit found that two-thirds of Americans opposed cutting promised benefits for future retirees. Reducing Social Security expenditures in the next decade would actually require cutting benefits for current retirees, an even more unpopular move. The same poll found that reducing Medicaid funding to reduce the deficit was even more unpopular, with 76 percent opposing any cuts.
Most Americans -- almost two thirds, in fact, according to the same Post poll -- believe that the deficit should be narrowed with a combination of cuts and tax increases. As the CBO analysis shows, the government's revenues are simply too low to fund the programs that nearly all Americans value. But these necessary tax increases need not be indiscriminate or even painful. There are a plethora of proposals for raising revenue without even slightly hurting the economy, including the Fiscal Commission's own recommendation to reform inefficient tax breaks that mostly benefit the rich. But it's past time that most members of Congress acknowledged what Sens. Coburn and Crapo and the general public already know: To preserve important government programs, taxes are going to have to rise.
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