Deficit hawks have long warned that unnecessary delays in deficit reduction carry risks and high costs that will only make the job harder down the road. A new study by the Congressional Budget Office (CBO) underscores that point. It analyzes the effects of waiting a decade – from 2015 to 2025 – to implement policies that would stabilize the federal debt relative to the economy.
CBO says the higher debt resulting from such a delay would:
- Lower incomes by reducing the amount of savings devoted to productive capital.
- Increase interest payments by the government, which would mean that larger tax increases or spending cuts would eventually be necessary.
- Make it more difficult for policymakers to respond to financial crises, recessions, wars or other unexpected problems.
- Increase the likelihood of another fiscal crisis.
The Treasury Department and the CBO also recently released deficit numbers for the first two months of the 2011 fiscal year. Treasury put the deficit at $291 billion, only about $5.8 billion below last year’s level at this time. The CBO estimated the deficit so far this year at $283 billion.