If the cease-fire over budgets holds, the economy no longer will be convulsed by eleventh-hour negotiations, missed deadlines, threatened shutdowns and fears of jeopardizing the nation's credit. The new 2014 deficit projection from the Congressional Budget Office — $514 billion this year from a $1.4 trillion high 2009 — means this year's deficit would be about 3 percent of the nation's economic output, good news in that it would virtually match the average percentage of the past four decades.
But the nation's debt continues to grow, the CBO says, ever rising as a share of the nation's gross domestic product. The CBO estimates that the federal debt will equal 74 percent of GDP at the end of the year, the highest since 1946, and it projects that based on existing laws, it will rise to 79 percent in 2024. The main drivers of the debt are the government's biggest benefit programs — Social Security, Medicare and Medicaid. The government revenue stream is simply not keeping up with the aging population and with the increases in the cost of care.
The CBO also predicted that after 2016, the health care law also will lower total working hours as many employees choose to cut back on work to qualify for federal insurance subsidies. Such a reduction would contribute to lower tax revenues and thus higher deficits, CBO director Doug Elmendorf said. That conclusion has become yet another piece of Republican ammunition against the law.
White House officials say the revenue projections in the president's budget won't be as pessimistic as CBO's, in part because they will factor in deficit reduction from their immigration overhaul plan. Under White House projections, deficits as a share of the economy will be below 2 percent after the 2023-24 fiscal year. The CBO says that under existing law, deficits will rise to about 4 percent.
In 2011, Obama and Boehner came tantalizingly close to striking a "grand bargain" that would have increased taxes and contained some of Medicare and Social Security costs. But the deal didn't hold.
It's difficult to imagine a set of circumstances anytime in the near future that would bring both parties that close to a significant deal again. Instead, the $1.1 trillion budget agreement struck by House Budget Chairman Paul Ryan, R-Wis., and Senate Budget Chair Patty Murray, D-Wash., eased across-the-board mandatory spending cuts and defused any chance of an election-year shutdown.
"They kind of did a grand bargain — they agreed not to do anything," said Robert Bixby of the budget watchdog group The Concord Coalition. "The Ryan-Murray budget was basically an agreement to stop fighting."
The past three years of confrontations have focused almost exclusively on those aspects of the budget that require annual approval — the "discretionary" portion of the budget. Untouched have been the huge benefit programs, which are most responsible for the debt.
"The tragic part of it is, all the anguish we're going through isn't dealing with two-thirds of the American budget," said former Sen. Alan Simpson, the Wyoming Republican who co-chaired a presidential debt commission created in 2010.
Politically, Social Security and Medicare are much tougher to tackle. While the public does demand fiscal discipline, it often rebels when spending reductions affect them. Consider the GOP letter demanding restoration of Medicare Advantage cuts. Or a recent letter from 16 Senate liberal Democrats calling for Obama not to include in his budget any provision that would reduce increases in Social Security benefits to future retirees. As it turns out, Obama will not.
"You're never going to hit anybody because they'll roll in and roll you over," Simpson said.
Associated Press writer Donna Cassata contributed to this report. Follow Jim Kuhnhenn on Twitter: http://twitter.com/jkuhnhenn
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