Right now, current law says we don’t have a long-term deficit problem. On the books, everything adds up. The reason we expect enormous future deficits is because we expect Congress will not follow current law:
So why does anyone believe that future Congresses 20 years in the future will actually implement the unpopular tax increases and spending cuts from a “grand bargain” in 2011? Here’s James Kwak on why it is a mistake to use the ten-year baseline:
The big policy uncertainty that hangs over the ten-year baseline is the Bush and Obama tax cuts of 2001, 2003, and 2009, which were extended in December 2010 and now expire at the end of 2012. If we extend all of those tax cuts, we will add $612 billion to the 2021 deficit (on top of $137 billion for patching the AMT). That’s real money. To which my answer is: let them expire. Let all the tax cuts expire, and there is no ten-year deficit problem.
Instead, the Gang of Six plan proposes to cut taxes by $1.5 trillion (over ten years) relative to the CBO baseline — which means $1.5 trillion in unnecessary spending cuts.
The real problems come after the ten-year horizon, when Medicare spending accelerates due to an aging population and increasing health care costs. Those problems need to be solved sooner or later, and sooner is better than later, since every year of high health care cost inflation that goes by makes the problem worse. But the Gang of Six plan is the wrong way to solve those problems (although it is admittedly far better than the Ryan Plan, which only makes them worse). Does anyone really think that the middle class’s paltry 2001/2003 tax cuts will make up for a lower Social Security cost-of-living adjustment and a cap on federal health care spending?