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March 14, 2013

Goalposts on Wheels

James Kwak:
Moving the Goalposts, by James Kwak: Ezra Klein yesterday highlighted one of the underlying problems with even apparently informed discussions of deficits and the national debt: the CBO’s “alternative fiscal scenario.” As opposed to the (extended) baseline scenario, which simply projects the future based on existing law, the alternative scenario is supposed to be more realistic. And it is more realistic in some ways: for example, it assumes that spending on Afghanistan will follow current drawdown plans, not a simple extrapolation of the current year’s spending. But the problem is that it has become excessively conservative in recent years—to the point where, as Klein says, “Policy makers, pundits and others almost exclusively use this model to stoke Washington’s deficit anxieties.”
The basic problem is that the alternative fiscal scenario simply assumes, without further support, that laws will mysteriously change in ways that reduce tax revenue and increase spending (relative to current law). As I put it a while ago,
“ The definitive report on our long-term budget gap implicitly assumes that we do nothing about that budget gap — that we keep cutting taxes and blocking spending cuts at every opportunity.”
Or, in other words, it assumes that Republicans win every fight over taxes and Democrats win every fight over spending.
Things weren’t always this way. ... I didn’t realize until reading Klein’s blog post that the CBO changed its spending assumption just last year. ...
It’s almost as if, as Congress does things that reduce the long-term national debt (like the Budget Control Act of 2011, which may be a stupid bill, but did reduce the debt under current law), the CBO moves the goalposts further away so the problem remains the same size. ...

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