When Doing Nothing Is The Best Thing To Do

Sometimes stalemate is a good thing. Today’s fiscal report from the Congressional Budget Office makes that very clear, as Ezra Kline reports:

The Congressional Budget Office just released the latest edition of its long-term budget outlook (pdf), and it shows the same thing as always: If Congress lets the Bush tax cuts expire or offsets their extension, implements the Affordable Care Act as scheduled and makes or offset the Medicare cuts prescribed by the 1997 Balanced Budget Act — which CBO calls the “extended baseline scenario” — the national debt will be totally manageable.

If Congress passes laws extending the Bush tax cuts without offsetting the cost, repealing the Affordable Care Act and its cost controls and protecting doctors from Medicare cuts without making up the savings elsewhere — the “alternative fiscal scenario” — the national debt will be totally out of control.

Here’s the CBO statement … more words, same message:

One long-term budget scenario used in this analysis, the extended-baseline scenario, adheres closely to current law. Under this scenario, the expiration of the tax cuts enacted since 2001 and most recently extended in 2010, the growing reach of the alternative minimum tax, the tax provisions of the recent health care legislation, and the way in which the tax system interacts with economic growth would result in steadily higher revenues relative to GDP. Revenues would reach 23 percent of GDP by 2035—much higher than has typically been seen in recent decades—and would grow to larger percentages thereafter. At the same time, under this scenario, government spending on everything other than the major mandatory health care programs, Social Security, and interest on federal debt—activities such as national defense and a wide variety of domestic programs—would decline to the lowest percentage of GDP since before World War II.

I’m not convinced that Klein’s “totally manageable” characterization is correct … but the CBO makes it clear that doing nothing (letting the Bush tax cuts expire, not repealing health care bill, etc) is the best thing to do. (Well, raising taxes on the upper 1% might be “better” but that is not going to happen.)

The CBO is clear: proposals put forth by the GOP as “helping” the economy do the opposite (emphasis added):

Under those policies, federal debt would grow much more rapidly than under the extended-baseline scenario. With significantly lower revenues and higher outlays, debt held by the public would exceed 100 percent of GDP by 2021.

Read the CBO report and then read their lips.

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  • SteveK

    Thanks for this excellent post Kathy. This part can’t be said enough:

    The Congressional Budget Office just released the latest edition of its long-term budget outlook (pdf), and it shows the same thing as always: If Congress lets the Bush tax cuts expire or offsets their extension, implements the Affordable Care Act as scheduled and makes or offset the Medicare cuts prescribed by the 1997 Balanced Budget Act — which CBO calls the “extended baseline scenario” — the national debt will be totally manageable.

    As it won’t take long for the wall street and the financial industry shills (you know who you are boys) to try to talk over the truths that this report shows with their ‘tried and false’ talking points.

  • http://uspolitics.about.com/ KATHY GILL

    Hi, Steve – thanks. That’s why I closed with “read their lips”! :-)

  • DaGoat

    By “doing nothing” the CBO assumes Medicare reimbursements will drop by a third and no SGR fix takes place, something almost no one wants to happen.

    Personally I am OK with taxes returning to Clinton-era levels, but again I see almost no one in power suggesting that. Obama has painted himself into a corner with his promises not to raise taxes on <250K.

    I do not agree that just raising taxes on the top 1% would be “better” and I think the CBO would back me up on that. I’m just going by memory here but I believe raising taxes only on >250K only increases revenues by 25% of what increasing taxes across the board would do.

    As I read it the CBO report is technically accurate but realistically neither party would embrace doing nothing.

  • http://wideeyedandreal.blogspot.com ProfElwood

    The CBO always assumes that no more disasters are going to strike, because there’s no way of predicting when they do. But that’s like saying we should get rid of sick leave, because sickness won’t happen if we can’t predict when.

    So, as usual, the baseline scenario is still unrealistic.

  • SteveinCH

    Kathy,

    Who knew that you and Steve K were for letting all of the Obama tax cuts expire. I never knew that. Good news.

    As to Ezra, the fact that he mentions the ACA in a discussion on budget deficits just proves he’s a partisan. Even under the CBO’s relatively optimistic scenario, the ACA is more or less budgetarily meaningless. Under more realistic numbers, it’s meaningful but in the wrong direction.

    And of course some of us (mostly those on the right at TMV) were calling for letting all of the Bush tax cuts expire in 2010. Funny that didn’t happen but it’s all Bush’s fault ; )

  • JSpencer

    “And of course some of us (mostly those on the right at TMV) were calling for letting all of the Bush tax cuts expire in 2010.” – SteveinCH

    If by calling you mean whispering, you could be right. ;-)

  • SteveK

    “And of course some of us (mostly those on the right at TMV) were calling for letting all of the Bush tax cuts expire in 2010.” – SteveinCH

    If by calling you mean whispering, you could be right. ;-)

    You gotta love the rights constant attempt to revise history.

    Senate G.O.P. Digs In to Keep Tax Cuts

    WASHINGTON — The Senate Republican leader proposed legislation on Monday to continue all of the Bush-era tax cuts indefinitely, testing the willingness of Democrats to allow a tax increase on the wealthiest Americans in a weak economy and making clear that a partisan fight will extend deep into the campaign season if not beyond.

    Republicans Win Fight To Keep Tax Cuts For The Rich

    Democrats couldn’t muster enough votes to avoid a Senate filibuster that would have reverted tax rates for the wealthiest Americans to pre-Bush-43 levels.

  • CStanley

    Anyone who’s been paying attention at all knows that the ‘Do Nothing’ plan has zero chance of implementation. The precise agenda items on which it relies on leaving existing law unchanged in order to make the budgetary math work are items that are 100% certain to be changed because there’s no political will on either side of the aisle to let these things stand (no one currently in power wants to let all of the Bush tax cut expire, no one wants to actually implement ACA with the Medicare doctor cuts intact, etc.)

    So while it’s important to understand this idea that doing nothing would balance the budget but doing the ‘somethings’ that we all know will be done are going to wreak fiscal insanity, that’s only the jumping off point for the conversation. Once we know that doing nothing would be fiscally responsible but doing nothing ain’t gonna happen, what’s next?

  • SteveinCH

    Steve K

    Did I say Congressional Rs were calling for doing nothing as Kathy calls it? Nope, I said those on the right on TMV (me for one) were doing so. Those on the left, yeah not so much. They just wanted to let some of the tax law snap back, about 1/6th of the total.

    And CS has the right of it. The current law baseline is silly. Even the CBO knows it’s silly. It’s why they put the alternative together.

    Unless Kathy, you are supporting the do nothing plan. No politician will do it but it’s certainly your right.

    If you look at the do nothing plan major assumptions they are.

    1. Put the rate table back to where it was under Clinton (well with some additional taxes that have been added since) — Supported by almost nobody in Washington. Now, only the Rs opposed 1/6 of that (the “tax cuts for the rich”) so let’s say the Dem do nothing plan would save about $50 billion a year.

    2. Don’t inflation adjust the AMT ever again — Supported by nobody in Washington

    3. Compensate based on the SGR — Supported by nobody in Washington

    4. Undo all the temporary spending in the ARRA going back to the baselines that existed before — Supported by some Rs selectively and nobody else.

  • DLS

    Actually, we who knew better gave the Dems the chance anyway and were supportive, when they lusted for spending and claimed that we needed a stimulus beginning in 2009. The normal position to take is to oppose such a thing, (for government, notably our federal government in our federal system) to refrain from doing anything drastic or large in particular. It was a good test case. Sadly, the stimulus didn’t consist of logical, sound measures but simply was gross misspending — many Dems thought it was 1933 or 1965 again [rolling eyes]. Obama originally sought indefinite deficits, as his State of the Union speech revealed (which was alarming to the informed and the principled). But Congress may have outdone Obama on this issue.

    The Dems gave informed people an even better reason (as they didn’t do a stimulus as ordinary people expected, but just went crazy) to consider the stance of the Austrian school, that the best thing for government to do in an economic downturn (as in an upturn) is to do nothing, because of government’s reverse Midas touch as well as the impropriety of more than minimal presence and action of government.

    The Dems misdeeds in 2009-2010 in the name of “saving the economy” constitute the true example supporting Doing Nothing (first, do no harm, and doing something likely will be harmful).

    The Democrats in 2009-2010, in the name of “saving the economy,” exemplified When Doing Nothing Is the Best Thing To Do.

    That’s the correct explanation that belongs with the article title.

  • DLS

    It’s not just the CBO baseline that’s silly. What about the Trustees’ Report on Social Security and Medicare? (The Summary Report is the shorter, quick, summary-indeed report the public and apparently so many readers on this site fail to read, for whatever invalid reasons.)

    In addition to having removed a long-standing warning that the future growth of entitlements not only will be harsh on the federal budget and will see the federal government grow to historically unprecedented long-term proportions of the economy, the Obama administration has also made that ridiculous Medicare assumption in discussing the current and future state of Medicare(!). The little acts of omission, and here, commission, are disturbing, and apparently are too difficult for many to spot.

    Projected Medicare costs over 75 years are about 25 percent lower because of provisions in the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act” or ACA). Most of the ACA-related cost saving is attributable to a reduction in the annual payment updates for most Medicare services (other than physicians’ services and drugs) by total economy multifactor productivity growth, which is projected to average 1.1 percent per year. The report notes that the long-term viability of this provision is debatable. In addition, an almost 30-percent reduction in Medicare payment rates for physician services is assumed to be implemented in 2012, notwithstanding experience to the contrary.

  • DLS

    C. Stanley wrote:

    Once we know that doing nothing would be fiscally responsible but doing nothing ain’t gonna happen, what’s next?

    Certainly it’s responsible in a vacuum when anything to reduce or end a deficit is to be considered. But the real problem is spending; as the Economist noted, 75% of the fiscal decisions should involve spending reductions or controls. The other 25% can be addressed by tax increases or by new taxes (which as the Economist has said, will be needed to secure Democratic cooperation and eventual approval).

    Spending reform has first and foremost to include entitlement reform, obviously.

    As for taxes, the Economist noted something that also was addressed by the deficit reduction commission here. Tax reform can yield more revenue. Namely, what so many of us also have known, the many intricate and Byzantine details of the tax code, the many “loopholes and exceptions,” need to be removed. As the Economist said, it’s like finding (a lot of) money under the furniture cushions. The commission also correctly said that the corporate income tax needs to be reduced to something closer to the middle (if not below the middle) of rates among OECD nations. Also noted was that a less complicated tax code with lower rates could yield more revenue (common knowledge except outside Washington, where it’s an amazing revelation, apparently).

    Here is the pair of Economist articles that constitute good advice for Obama and the Congress, though it shouldn’t surprise anyone else.

    http://www.economist.com/node/17520102

    http://www.economist.com/node/17522328

    Unfortunately, Obama and the Congressional Democrats, after the commission released its thoughts on paper, promptly rejected the major reform elements. Pelosi called them “unacceptable.” As for the most important component or element of a fiscal reform plan (not just a deficit reduction or elimination plan), entitlement reform, the commission only presented laughably tame reforms such as raising the retirement age to less than it needs to already be (in the seventies), only raising it a year or two, by 2075(!). Yet Obama rejected this and all other entitlement reforms that reduce payouts to beneficiaries (meaning, spending) in any way. Reid did Obama even better, saying there was nothing wrong with Social Security, that it contributes nothing to the deficit, and it should be left alone for thirty years.

    I continue to believe (and fear, as it will make things worse when things go wrong later, and in the additional tough measures that will be in order) that the politicians will avoid any reform, notably entitlement reform, especially close to elections, and it will be passed on to “someone else”; once the problems can no longer be avoided, and denied (in Reid’s and other lefties’ cases), and reform can no longer be deferred or postponed, that’s when so many will be “surprised” and the politicians who have been in Washington for so long, once it’s no longer fun, will retire.