The Deficit, Reloaded

The federal deficit is on the rise again -- a projected $219 billion to $250 billion this year, compared to $163 billion in 2007, according to the latest numbers from the Congressional Budget Office. Not surprisingly, the skittish economy is the main factor here, even though the CBO argues that we're not formally in a recession. And that's not even considering the impact of the economic stimulus package, which will probably increase the deficit in the short-term, even though economic growth will eventually be helpful.

A couple of initial impressions here. One is from my colleague and co-author Jean Johnson, who's fond of pointing out that if we only ran deficits during recessions and national emergencies, we'd be in great shape. But we don't. We run deficits routinely, which is how you end up with a $9 trillion national debt. Until you balance the budget, you can't stop borrowing, and until you stop borrowing, you can't get the national debt under control.

The other point worth remembering is that the deficit is only part of the problem. If I could quote the CBO report for a moment:

The relatively sanguine outlook suggested by the 10-year baseline projections should not be interpreted as implying that the nation’s underlying fiscal condition is sound, both because the United States continues to face severe long-term budgetary challenges and because many observers expect policy changes that would deviate from the current-law baseline over the next decade. Ongoing increases in health care costs, along with the aging of the population, are expected to put substantial pressure on the budget in coming decades; those trends are already evident in the current projection period. Economic growth alone will be insufficient to alleviate that pressure, as Medicare and Medicaid and, to a lesser extent, Social Security require ever greater resources under current law. A substantial reduction in the growth of spending, a significant increase in tax revenues relative to the size of the economy, or some combination of the two will be necessary to maintain the nation’s long-term fiscal stability.

The long-term problems of Medicare and Social Security are still out there. The rise and fall of the deficit doesn't affect them at all. And unless we start looking at these problems, start really considering what we're going to do about skyrocketing health care costs and the looming retirement of the baby boomers, we're still headed for fiscal disaster.