Editorial: Deficit down, no dancing
Some relatively good news regarding the nation's red ink Tuesday: With trillion dollar-plus deficits becoming the new norm over the last four years, the Congressional Budget Office now reports that fiscal year 2013 will come in at $845 billion in expenditures over revenues. The $1 trillion threshold has a certain symbolic significance, and not in a good way, so to get under it for the first time in the Obama era should not be discounted.
That said, cancel the party. First, Uncle Sam is still borrowing 24 cents of every dollar he spends. As a percentage of the size of the economy, the deficit will come in at 5.3 percent of gross domestic product, with the general rule being that it must dip below 3 percent to be considered tolerable, if not necessarily healthy, by most economists. That said, it's heading in the right direction from 2012, when the red ink rang the bell at 7 percent of GDP.
While the annual deficit is expected to drop to $430 billion by 2015 - putting it back in 2008 territory, when it hit $459 billion under George W. Bush - it will begin to go back up from there, threatening $1 trillion again in 10 years. From where the CBO now sits, barring any government action to distort the budget picture - which of course is unlikely - $7 trillion more in additional debt will be added over the next decade. Unreformed entitlement spending continues to break the bank.
In any case, my how we've altered our definition of disastrous. If once upon a time $845 billion in the red would have been unthinkable, now we'll take it, considering the now quite imaginable alternative.
Those deficits could begin to fall further, faster, if automatic spending cuts of $85 billion happen as scheduled on March 1, a situation that Republicans and Democrats alike would prefer to avoid. John Boehner & Co. in the House and Republicans in the Senate are trying to prevent reductions to defense spending by proposing more significant decreases to discretionary domestic programs such as agriculture and education. President Obama and his fellow Democrats say that's a no-can-do, as it will threaten a very fragile economic recovery, with the CBO projecting economic growth in the coming year at an anemic 1.4 percent as is (following a 1.9 percent jump in 2012), accompanied by chronically high unemployment. As a result, they have preemptively offered a substitute plan that would mix spending cuts with more tax increases.
This page has no great objection to eliminating the carried interest provision that helped make Wall Street guys like Mitt Romney mega-rich by taxing their earned income at the significantly lower capital gains rate. The financial services industry has done America precious few favors the last few years, and shouldn't expect any in return. That said, one expects any further revenue enhancements to face very rough going from Republicans after they made tax concessions during the fiscal cliff debate.
It's Obama's turn to show good faith. He simply must come to the table on entitlements, which is where the whole budget ballgame is, in many ways. The White House didn't win any style points by missing its Monday deadline to submit a budget to Congress. Again, the administration and Democrats in general are sometimes their own worst enemy, acting as if the rules simply do not apply to them. When was the last time the Democrat-led Senate bothered to adopt a budget?
From this vantage it would not be the end of the world if the sequester were allowed to happen. The $85 billion cut in March, followed by $110 billion in annual reductions starting next fall, are, in the overall scheme of things, drops in the bucket. Sure you'd like to see those cuts applied in a more rational, judicious, consensual way, with an eye toward maintaining the delicate balance between doing no significant economic harm in the short term and setting the stage for robust growth in the more distant future. Alas, one has been jaded by experience.
The CBO says $4 trillion in agreed-upon cuts could balance the budget by 2023. That may be too much to ask, as it could tip the scales in a regrettable way, short-term. But Washington can do better, can exercise more fiscal discipline. Now is arguably the time to do that with Americans conditioned by the last five years to steel themselves against hardship. Acting as if there was no tomorrow has gotten us nowhere. Ultimately this generation of leadership must do better, for the sake of our kids and grandkids.
Journal Star of Peoria, Ill.