Post Scripts: U.S. Debt

The United States will soon end this fiscal year with a $407 billion budget deficit that is more than double what it was in 2007 – and the red ink is projected to flow on and on.

Even before the cost of the government’s takeover of Fannie Mae and Freddie Mac is calculated, the Congressional Budget Office projects that the nation will add more than $2.3 trillion to the national debt over the next ten years. This updated report released a few days ago, is the latest sign that our next president will face some mighty tough fiscal decisions early in his new administration. But it is already producing tough talk in Congress, and on the campaign trail, over who is to blame for all the red ink.

"This Democratic Congress really does deserve the name ‘Do debt, Do Deficit and Do nothing,’" said Senator Judd Gregg, Republican from New Hampshire, the ranking Republican on the Senate Budget Committee in a briefing after the release of the CBO committee.

With the new fiscal year to start Oct. 1, Congress has yet to pass a single appropriations bill.

Senator Kent Conrad, Democrat from South Dakota who chairs the Senate Budget Committee, shot back: "Republicans are the architects of the economic fiasco that has brought us to where we are."

What’s driving deficits is "an unusual amount of turbulence" in the U.S. economy this year, including depressed housing markets, fragile financial markets and soaring prices for energy and food, along with the cost of war. But the biggest long-term threat is rising health costs and the retirement of the "baby boom" generation.

"As we have said over and over in the past, the nation is on an unsustainable long-term fiscal course driven primarily by rising health care costs" said CBO director Peter Orszag at a recent briefing. "And that does need to be addressed before the crisis hits."

One of the first decisions a new president must make is whether or not to extend Bush’s tax cuts, set to expire in 2010. CBO projections are based on the assumption that all expiring tax provisions will be allowed to expire and that Congress will not again pass legislation to curb the impact of the Alternative Minimum Tax on millions of middle-class families.

If these tax cuts are not allowed to expire, the deficits get worse. Both major party presidential contenders (McCain and Obama) have plans to cut taxes significantly over the next 10 years. Their tax cuts range into the billions. Although Washington’s capacity to ignore warnings is well established, budget analysts now say the situation is alarming, especially the fallout from the housing crisis, that it could set off a national wake-up call.

"You’ll hear lots of excuses, such as: it’s a slow economy so there’s nothing we can do about it. It’s convenient for politicians to find reasons why they can’t possible do anything in a campaign season," says Robert Bixby, a director of the Concord Coalition, a public interest group that seeks fiscal responsibility.

It is not known at this point how much the Fannie Mae and the Freddie Mac takeovers will add to government deficits. Politically, it may make a difference that in the first year the (new) president is in office we’re going to have a deficit that is somewhere over $500 billion.

The politicians in Washington don’t appear worried. They intend to let taxpayers do the worrying.