The big story in DC today is a graph. Namely, this graph:
Those lines show the Congressional Budget office's latest projections: A historic deficit actually made worse by Obama's budget. The important number is $1.8 trillion which, on cable news shows, will only be uttered as "almost $2 trillion." That's CBO's proposed deficit in 2009. "Proposed changes in tax policy would reduce revenues by an estimated $2.1 trillion over the next 10 years. Proposed changes in spending programs would add $1.7 trillion (excluding debt service) to outlays over the next 10 years. Interest costs associated with greater borrowing would add another $1.0 trillion to deficits over the 2010–2019 period." Tax cuts plus increased spending plus debt service equal deficits. Worsened economic performance increases deficits. Demographics and health spending gives the budget another kick in the gut. Really, it's all bad news. And even though the 2009 and 2010 deficits are particularly large due to the stimulus, it's also possible we'll need more stimulus, which would render the 2011 and 2012 deficits pretty big, too. A lot of this, as Peter Orszag emphasized on a call moments ago, is dependent on technical assumptions. The CBO assumes a 2.2 percent GDP growth rate. That's lower than the 2.6 percent estimated by the administration, the Federal Reserve, and the Blue Chip. If the CBO is right, the deficit will be higher. If the Federal Reserve is right, it will be lower. Demographic assumptions, health care cost assumptions, immigration assumptions, and much more comes into play as well. But here's what the CBO is right about. Revenues and outlays simply don't match up in the near future. For the next few years, that's fine: You run deficits amidst a recession. Beyond that, there are a number of policy changes -- like health system reform -- that can substantially cut spending. But we've now had two presidents in a row cut taxes substantially. Eventually, that has to stop, or we have to start spending less.
Those lines show the Congressional Budget office's latest projections: A historic deficit actually made worse by Obama's budget. The important number is $1.8 trillion which, on cable news shows, will only be uttered as "almost $2 trillion." That's CBO's proposed deficit in 2009. "Proposed changes in tax policy would reduce revenues by an estimated $2.1 trillion over the next 10 years. Proposed changes in spending programs would add $1.7 trillion (excluding debt service) to outlays over the next 10 years. Interest costs associated with greater borrowing would add another $1.0 trillion to deficits over the 2010–2019 period." Tax cuts plus increased spending plus debt service equal deficits. Worsened economic performance increases deficits. Demographics and health spending gives the budget another kick in the gut. Really, it's all bad news. And even though the 2009 and 2010 deficits are particularly large due to the stimulus, it's also possible we'll need more stimulus, which would render the 2011 and 2012 deficits pretty big, too. A lot of this, as Peter Orszag emphasized on a call moments ago, is dependent on technical assumptions. The CBO assumes a 2.2 percent GDP growth rate. That's lower than the 2.6 percent estimated by the administration, the Federal Reserve, and the Blue Chip. If the CBO is right, the deficit will be higher. If the Federal Reserve is right, it will be lower. Demographic assumptions, health care cost assumptions, immigration assumptions, and much more comes into play as well. But here's what the CBO is right about. Revenues and outlays simply don't match up in the near future. For the next few years, that's fine: You run deficits amidst a recession. Beyond that, there are a number of policy changes -- like health system reform -- that can substantially cut spending. But we've now had two presidents in a row cut taxes substantially. Eventually, that has to stop, or we have to start spending less. 
