If you need a good laugh, I recommend reading the CBO’s Budget and Economic Outlook. (Here’s the link.) It was just released this past week. Reading the absurd assumptions in this report brings back many fond memories, like when I met Jenny and told her about the fabulous / easy life she would have with me.
Take a look at this chart which shows the CBO’s forecast of future tax revenue and expenditures — and how our deficit will shrink. I actually don’t blame the CBO, as they need to rely on current law in making their projections. I blame the politicians.
Notice how revenues will reach 20% of GDP in four years and will reach 21% after that! Awesome. The only problem is that revenues have averaged 18% over the long-term and only reached the 21% range when executives were paying taxes on stock options from the great tech bubble.
The CBO describes the absurd assumptions that they had to rely on:
1. Sharp reductions in payments to physicians under Medicare – starting at the end of 2011
2. At the end of 2011, all of the following will expire: unemployment compensation extensions, the one-year reduction in payroll taxes and the two-year extension of provisions designed to limit the reach of the AMT
3. At the end of 2012, the following will expire: the lower tax rates (and the expanded credits and deductions) from the 2001 and 2003 tax acts
4. Discretionary spending will increase with inflation, rather than the higher rate seen over the dozen years leading up to the recession
If you want a more realistic perspective, go back to the CBO’s Long-Term Budget Outlook that they published six months ago. They show what will happen with our debt under the assumptions that are forced upon them and under the alternative (more realistic) scenario.
In case it helps, I’ve also included the CBO’s projections for my hair under my assumptions:
Unfortunately, the CBO has also published pictures of their more realistic, alternative scenario:
The bottom line is that we’ll never address a problem that we “assume” we’re not going to have. If we had been honest from the beginning, we would have measured our annual deficit on an accrual basis, rather than a cash basis — and we would have recognized our problem much earlier. Instead, we used the cash basis, counting our Social Security tax revenue as income that could be used to balance our budget each year. Now, we assume that the tax revenue fairy will make it all better.