What America's Budget Looks Like

Townhall.com ^ | February 4, 2014 | Kevin Glass

[Kaslin]

The Congressional Budget Office's long-term budget update was released today, and there are important updates from its previous projections relating to recent legislative changes. Guy will have more, but there are a few important things to remember:

The CBO's forecasts rely heavily on economic models

Any long-term forecast would be useless if there wasn't a sophisticated economic model behind it. If there's no knowledge of how the economy works, there can be no tax revenue projections, no spending estimates, and no budget estimates. To that end, the CBO projects a notable economic expansion in the next few years:

And they project a continuing drop in labor force participation for a variety of reasons, two of which are an aging labor force (more retirees) and the disincentives to work in Obamacare:

Previous estimates from the CBO have turned out to be overly optimistic when it came to economic forecasting. If these turn out to be overly optimistic, our deficit and debt picture will look much worse.

Federal debt has "stabilized" - at levels we haven't seen since World War II

Slowing health costs and sequestration have combined to slow the tide of red ink - here's what our debt picture looks like:

Deficits that will average 3.5% of GDP over the next ten years will slow the massive debt increases that we've seen in the Obama era. It's not all good news, though - as the Committee for a Responsible Federal Budget points out, this report is worse than the last one in this regard:

"Tax Expenditures" make up a massive amount of the tax code

What the CBO calls "tax expenditures" are controversial - basically, it consists of anything that reduces a tax burden below a statutory rate. Some pundits call this "spending through the tax code," while others say that anything that lets taxpayers keep more of their own money can't be qualified as "spending."

Regardless, the amount of money that taxpayers keep below their statutory tax rates is astounding:

Much public policy recently have focused on these tax expenditures. The Republican ACA-replacement plan, for example, shrinks the employment-based health insurance exclusion in order to pay for other spending. The CBO puts into perspective just how massive some of these exclusions are.

Coverage provisions of Obamacare will reduce demand for employment, but CBO projects that decreased out-of-pocket spending on health will translate to increased out-of-pocket spending on other goods and services

One of the big takeaways - Guy Benson will have more on this - is that CBO lays out the work disincentives in Obamacare. There will be an increase in voluntary unemployment due to Obamacare provisions, but CBO thinks that involuntary unemployment will be unchanged. This is laid out in this paragraph:

There are a lot of assumptions that undergird the CBO's forecast, from economic performance to budget projections to employment incentives in Obamacare. They could be wrong, but policymakers and legislators typically take CBO reports as pretty ironclad. Policy will be made based on this.

[prisoner6]

Hmmm...

So if LIV looks at the charts, especially the first, it looks like the Clinton administration did a great job.

Wrong.

RR had it correct, Bush 2 screwed it up.

The big thing was beyond any president.

1995 through 2004 was the explosion of the internet. Clinton benefited.

[Gaffer]

So. We have some graphs of ‘budgets’. Are these budgets in the same sense as the one I have for my ‘economy’?

For instance, if I tap a signature credit line and buy some swamp land in Florida at inflated prices, say like the Fed does with its 4+years of $85 Billion in QE to buy T-bills and MBEs on the market, I can use those inflated land values as assets for my budget, right? Hell, since it was a signature credit line, I don’t even have to count that ‘loan’ as an outstanding debt, do I? I can just let it sit there - all I’ll have to do is pay the low interest, right?

The fact is, the Fed spent over $4 Trillion Dollars it did not have this way for over 4 years ($85B/month - do the math). In fact, if you recall here from a couple of days ago, there was a thread on the Fed all happy about having $4+ Trillion in assets - go figure, that’s the same as the crap they bought with money it did not have. So who cares? Nobody is gonna audit them, but themselves. Just like me and my credit line...AND, I have all that valuable land down there in Florida.

[lepton]

Clinton benefited...from having a conservative Republican congress.

When the money started pouring in after the capital gains tax cuts, the administration had no idea why, and said so publicly. Welfare reform inspired a lot of people to quit taking subsidies and get a productive job. On the downside, the Clinton Administration SEC did little aside from shake down companies for campaign contributions...which both increased positive business, and allowed corruption to grow unchecked.

[henkster]

Budget? I didn’t know we had one. I was under the impression that our government just spent money willy-nilly, as though they could just print more. Oh wait...

never mind.

[henkster]

Clinton benefited from the economy Reagan built.

[mrsmith]

My favorite CBO fantasy is that sequestration will happen.

Just like this congress, every future congress will override it.

And CBO knows they will. But these are their employers and you gotta say what the boss wants you to...

[lepton]

That as well, but he managed to bring the recovery he inherited to its knees until after the country kicked his party out of a majority position in Congress.

[mrsmith]

Those surplusses were also the result of Baby Boomers paying lots of SS during their peak earning years.

If Clinton had saved that money instead of throwing it away on “Midnight Basketball”, etc., we’d be in much better shape today.

[lepton]

Those were the finishing touches that made them reportable as surpluses...though they weren’t, for the reason you cite.

The big CHANGE in money flow was a combination of spending limits - largely a legacy of ‘no new taxes’ Bush I demands, capital gain tax cuts bringing money into the active economy, and the welfare reform...all things that Clinton demonized, then claimed credit for after they worked. ...well, those, and slowing down Clintonian undermining of the economy, including killing Hillarycare.