Sunday, July 4, 2010

A Chart for the Fourth of July

Just before Americans started celebrating the July 4th weekend, the Congressional Budget Office (CBO) released its annual Long Term Budget Outlook. The chart shows the CBO projection of the federal debt (as a percent of GDP) assuming that current law or policies do not change as defined in the CBO alternative fiscal scenario (CBO Outlook in 2010). The chart also shows the CBO’s long term projection at the same time last year (CBO Outlook in 2009). And for comparison the chart also shows the history of the debt going back to the time of the founding of the country. Like the fireworks tonight, you can see one explosion after another, and one higher than the one before. But unlike the fireworks tonight, these are not the kind of explosions you want to see.

We can hope that Washington gets its act together in time for next year’s July 4th celebration so that CBO can make a non-exploding debt projection, like the one at the lower right of the chart. In this lower projection the debt is equal to the 67 percent of GDP currently forecast for 2011, but it then declines in an orderly manner until it reaches 40 percent of GDP, rather than the 947 percent of GDP now projected for 2084. As I testified at the House Budget Committee last Thursday, I think such a plan—if it is clear and credible—would be a much better stimulus to growth and job creation than another “stimulus package” of the kind we saw in recent years.

For more information about the CBO projection, you can examine their spreadsheet by clicking on “additional info.”

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