The Budget Crisis in Congress's Head
A year ago, it made sense to worry about the finances of the U.S. government. At the time, the Congressional Budget Office was projecting an unsustainable long-term budget deficit of 5 percent of gross domestic product.
And it made yet more sense two years ago, when the budget forecasts suggested the gap might be as high as 7 percent of GDP.
These worries should be contained if not gone. Officials now anticipate deficits of 2 percent to 3 percent in the coming years. Debt will actually fall or be steady during the next decade relative to GDP.
This should change the way we think about fiscal policy. It's often said that Washington needs a forcing event -- a fiscal cliff, a debt ceiling -- to push it to make budget decisions. What's changed is that government finances are much improved because of higher tax revenue, lower spending and slower increases in health-care costs. Thank the fiscal-cliff deal for the first, the debt-ceiling deal for the second and President Barack Obama's health-care law for some of the third.
No matter, we seem destined to refight a needless battle over the debt ceiling, which will need to be raised in October or November, according to the CBO. Despite the country's improved finances, we're still barreling toward the forcing events that caused past crises. Fiscal fighting has detached completely from fiscal realities.
Congressional Republicans will ask for new spending reductions. Democrats, for their part, are taking a no-concessions line and will seek to undo past budget cuts. The only difference this time is that the rationale for these collisions has worn out.
The country's finances are rapidly improving. The threat of fiscal crisis looks more remote than ever. And anything that does need work either isn't urgent or can't be handled in crisis mode.
Obama is scheduled to give a major address on the economy tomorrow. The speech has been billed by the White House as the blueprint for a new agenda. But the coming months will hang on a different issue: Will the return of forcing events bring us back to the crisis mode of the last few years? Or can Congress just move on?
The Republican position, at least on the surface, is more hardline than ever. The plan is to demand that Congress pass what amount to a conservative wish-list, in return for incremental increases in the debt ceiling.
If Congress privatizes Social Security, for instance, that's worth 3 1/2 years of debt-ceiling headroom. Block-grant Medicaid? There's a year or so. Slash food stamps? A few months.
At least the Republicans are thinking about longer-term reforms, and not immediate austerity. The new demands, though, are simply not credible: What they're asking for can't and should be overhauled at the 11th hour.
It's a surreal demand for an imaginary budget crisis that's growing ever-more imaginary. If we have a real one, it will be of Congress's own making.
(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)