CBO Report: Did anyone pay attention?

The Congressional Budget Office released a day or so ago a report setting forth some of the scenarios and consequences of the year end fiscal mess the Government has created. By government, I mean this Congress, past Congresses and the Obama Administration as well as past Presidents.  The report is entitled “Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013.”  It is a bad title but a good read.

It is well known the end of this year is a crossroads for critical events, which will impact the future of the country. At the end of the year, unless Congress and the Obama Administration can reach some agreement, the following will happen: 

• The Bush tax rate cuts for all taxpayers will expire at the end of the year. The marriage penalty will also be re-instated.
• The current rates on capital gains now at fifteen percent will expire at the end of the year.  
• The lower rates on dividends installed in 2003 will expire at the end year.
• The Alternative Minimum Tax (AMT) will scoop up millions of taxpayers.
•  The temporary 2% employee payroll tax cut will also expire at the end of the year.
• More than 100 other tax provisions will have expired or will expire.
• Spending cuts are scheduled to hit the Pentagon and other federal agencies to meet an arrangement made last year over the nation’s debt limit due to the utter failure of the Supercommittee.

None of this is new, of course. However, the CBO report does try to quantify the consequences. Here are the choices: If Congress just extends current law, (taxes stay the same and no spending cuts) the budget deficit continues on “an unsustainable path. If Congress does nothing the spending cuts and massive tax increases would add a significant drag on the weak economic expansion.

The CBO report puts forth different economic projections, which I will not dwell on. They are easy to summarize. (1) Raise taxes and the economy tanks. (2) Keep with the current policies and more debt will be accumulated which will lead to long term negative consequences. In fact, the burden imposed by interest payments on the federal debt will limit the ability to use tax and spending policies to respond to unexpected challenges, and for the likelihood of a sudden fiscal crisis.

The report states:  “the longer the necessary adjustments in policies were delayed, the more uncertain individuals and businesses would be about future government policies, and the more drastic the ultimate changes in policy would need to be.”

This all sounds bad. We better do something about it. Forget about it. Not going to happen any time soon.

Senate Majority Leader Harry Reid, (D-NV), has decided the U.S. Senate cannot be bothered by all of this. He announced the Senate Democrats would not even consider extending hundreds of billions of dollars in expiring tax cuts until after the fall elections or deal with the automatic reduction called a sequestration. 

He stated "Unfortunately, it appears the that the Republicans' blind adherence to Tea Party extremism is making it impossible to reach this sort of balanced agreement before the election.”

What a bunch of self-serving, diversionary dribble.  He is basically, saying, if you do not do what I want or have a contrary view, you are an extremist, typical lefties rhetoric and shameful by someone holding such an office. It is no wonder he cannot get anything done when at every turn he alienates those that do not agree.

I understand Senator Reid wanting to maintain his precious majority. He has done about everything possible to make sure his flock does nothing- no budget for 4 year, limited or no amendments on the floor, votes on legislation that has no possibility of passing. Great politics but in the interim, the country suffers.

He should read the report. It emphasizes that the prolonged uncertainly is detrimental to the economy.

CBO expects that households will restrain their spending a little as the scheduled increases in tax rates draw near and that businesses will hold off from some investment and hiring out of concern that the economy will weaken next year. In addition, government agencies may pull back on spending in anticipation of cuts in funding at the beginning of the year.

So, there it is. Delay for political reasons just makes things worse. It is wrong, wrongheaded and a shame the country has to put up with all of this. Anyone who is even a less than casual observer of Congress can not have high hopes anything hammered out in the waning days of a lame duck session will be good. What a mess and it does not have to be that way.

I know I am finger pointing at Senator Reid. Rightly so. There is blame for the Republicans too in my view. Of course, Mr. Obama is beyond culpability as his voice has been either a recording from years past, muted or he has lost the power, desire and ability to lead. Or simply does not care about anything except his primary campaign issue—Bain Capital.

 

Comments

[Dan Bates]

enjoyed your article Jack.