There's been a lot of talk this week about the latest long-term forecasts from the Congressional Budget Office, but stories headlined "CBO tells Obama deficit panel that forecast remains bleak" are a little off the mark. As Matt Yglesias and the above graph point out, if Congress does nothing, we'll be fine, debt-wise.
Of course, Congress will likely do some things -- like the annual AMT tax fix and adjusting changes in doctors' Medicare compensation -- that will increase the deficit, but it's highly unlikely that that they'll literally eliminate every cost-saving mechanism in the health care bill, as the CBO assumes. In fact, the CBO has historically "substantially underestimated" savings from health-care reforms.
Kevin Drum and Brad Delong point out that there's more than a little politics in this alternative fiscal scenario, which is a bit out of the purview of an office of economic analysis. However, it is a bit ironic that Republican critics promoting the CBO's assumptions are the same people driving them, because Republicans want to repeal the cost-saving measures in the health-care reform bill.
Those who do take CBO's political projections as seriously as their economic ones, however, ought to give credence to CBO Director Doug Elmendorf when he argues for more stimulus -- "There is no intrinsic contradiction between providing additional fiscal stimulus today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential."
-- Tim Fernholz
