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Unsustainable Debt, Unsustainable Gridlock

By Sean Trende - December 9, 2011

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This near-constant growth has given a regular boost to the pie Congress divvies up. This is why every presidential candidate of both parties over the past 20 years, including Barack Obama, was able to promise some combination of tax cuts, spending increases, and deficit reduction.

This enabled “grand bargains” on deficit reduction in the past. Take the famous balanced budget agreement of 1997. That consisted of a combination of spending cuts, but also spending increases (SCHIP began then, for example). It also contained major tax cuts. Yet because the pie was growing so rapidly, we still had enough left over for substantial deficit reduction.

But those days are over, at least in the short-to-medium term. We’ve now had 11 straight quarters where per capita GDP has been lower than it was not just three, not just four, but five years earlier. Third-quarter per capita GDP in 2011 was lower than every pre-recession quarter since early 2005. At it’s current trend, per capita GDP will not reach its pre-recession peak until 2014.

In other words, for the first time in a long time, Congress is not fighting over how to cut up bigger pie slices. It has to pick real winners and losers. While it is presently avoiding that day of reckoning by running large deficits, such a strategy simply can’t go on forever.

The current CBO projections of deficit spending over the decade run around $3.5 trillion. But remember, that assumes that Congress allows the “doc fix” to go into effect, which would slash doctors’ reimbursement rates for Medicare. It assumes that Congress doesn’t fix the Alternative Minimum Tax, and allows it to extend into the incomes of a substantial number of middle-class families. It assumes all of the Bush tax cuts expire, that the payroll tax cut is not extended, and that unemployment insurance is not extended.

Hardly anyone believes that these are realistic assumptions. If you assume the doc fix and AMT fixes don’t expire, and that the Bush tax cuts are extended, we are looking at around $8.5 trillion in debt over the next decade. Remember, President Obama only wants to end the Bush tax cuts for those making over $250,000 a year; enacting this trims about $1 trillion off that number.

CBO also assumes 3.6 percent growth from 2013 through 2016. But back in 2009, CBO projected GDP growth of 4.6 percent for 2012 and 4.8 percent for 2013. Last year it projected 3.1 percent growth for 2012 and 3.3 percent for 2013. Today those projections are 2.7 percent for 2012 and 3.1 percent for 2013.

The problem is, as growth projections are lowered, revenues are likewise lowered. If CBO’s estimates of growth continue to be on the high end -- and as we’ve seen, there’s reason to believe that they will be -- then we could easily be looking at cumulative deficits of upwards of $10 trillion over the next decade. This isn’t sustainable.

If the current partisan rancor stems from a climate in which Congress simply borrows the increased GDP it is used to receiving, imagine what will happen when that credit line is maxed out. Sooner or later, and probably sooner, we will reach a point requiring major changes that go well beyond taxes on people making above $250,000 a year or tweaking Medicare.

This, I think, is the endgame. If Republicans are in charge when the tough choices really have to be made, we will probably get some version of the Ryan Plan, without the tax cuts. If the Democrats are in charge, we will get a value-added tax. And if control of government is divided, the ship really could go down. 

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Sean Trende is senior elections analyst for RealClearPolitics. He is a co-author of the 2014 Almanac of American Politics and author of The Lost Majority. He can be reached at strende@realclearpolitics.com. Follow him on Twitter @SeanTrende.

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