Understanding the brouhaha over the latest CBO Report.
Depending on where you’re getting your news on the most recent report from the Congressional Budget Office (CBO) it’s either President Obama’s greatest triumph thus far in the Oval Office or the fiscal harbinger that chronicles the end of days. In reality it’s a little of both. Here’s The Straight Dope.
The Difference between Deficit and Debt
This is a good place to start as any. Media outlets, political pundits, and politicians have been interchanging the two words for years now. And I guess it’s understandable? Both words deal with the economy. They both start with the letter “d.” I guess if you’ve been drinking in the afternoon and start slurring your speech they can sound basically the same?
I don’t know man…
To me, the words “deficit” and “debt” couldn’t be any more different.
- Deficit – It’s the difference between the amount of money the government brings in and the government spends EACH YEAR. Used to describe a year’s budgetary shortfall. This number is negative, because the US government spends more than it takes in. The last time we had a surplus – the government took in more than it spent – was when Bill Clinton was president.
- Debt – This is the total money that the US government owes over A NUMBER OF YEARS. This number is also always negative, because US government has A LOT of debt. For every year there has been a deficit, the US government has acquired that much more debt.
So to summarize:
Deficit = money lost in one year
Debt = money lost over many years
Now that’s settled.
The Good News from the CBO Report
The deficit is down at the lowest level since President Obama took office.
The deficit shrank by $15 billion from last year’s total ($483 billion) to this year’s total ($468 billion). The projected deficit – which is estimated to be 2.6% the size of the current US economy – would be the smallest since the 2008 Recession and below the 2.7% average of the last 50 years. For the Obama administration this is good news, because it is further proof that the economy is recovering at a healthy rate. But it might all have caused a bigger problem, more on that in a bit.
Also another piece of good news is that the CBO estimates that the cost for the Affordable Care Act (ACA) is well below their 2010 estimates. Even though the cost of the program will increase over time, the year-by-year projections that were originally estimated are lower. The original projections of the program were set to be $710 billion through 2015 to 2019, but they’re now estimated to be closer to $571 billion, a 20% drop from the original estimates. If these numbers continue, that means the ACA could help decrease government spending in terms of medical care, which would decrease the deficit then in-turn would eventually help with the US’ massive debt.
Speaking of debt…
The Bad News from the CBO Report
Even though the CBO estimates that the deficits will remain stable to 2018, they also warned they would rise much higher after that.
With interest rates bound to rise (after historic lows) and government debt getting bigger-and-bigger each year with it expecting to hit 100% of the GDP in 25 years (!!!), the debt is expected to greatly deter the US economy. The interest payments the government would have to make alone will double in 2019 ($480 billion) and triple in 2024 ($722 billion)!!
The worry here would be the “liquidity” of the US government in the future. If the national debt gets too out of hand, it could restrict policymakers from using tax and spending policies to respond to future challenges.
So the Verdict?
Well like most CBO reports it’s hard to say. These are after all just estimates in what will happen in the future. Things like the housing crisis or the tech-boom can never be predicted, but would have massive effects on the US economy going forward.
For the Obama administration, my guess they have to be pretty happy with everything in the report. The year-to-year deficits are finally going down (indicating that the economy is at least growing) and the ACA is costing a lot less than originally projected.
But that debt… MAN!
All this comes to the fact that the debt is starting to become something the US government will have acknowledge sooner rather than later. During the 2008 Recession it made sense to put the national debt on the backburner while the economy recovered, but it will start to effect the growth of the overall economy over the coming years if not addressed. The only real hope here is to have legitimate conversations about the debt – and not just grandstanding – in Congress with both sides coming up with practical and sustainable solutions.
Yup, we’re screwed.
(Photo Credit: Congressional Budget Office, Google Images)