Judging by recent media reports, there is a growing belief in Washington that the best way to deal with the deficit is to “declare victory.”
It won’t work.
The deficit problem is far from being solved and its lengthy shadow will hang over every other issue, including the economy, until a fiscal sustainability plan is in place.
To be sure, the deficit is coming down and that is good news. However, most of the improvement comes from a recovering economy, allowing expiring tax cuts to expire and assuming that improbable cuts in discretionary spending and Medicare provider payments will actually occur.
And even if all these things turn out as planned, the budget is still on an unsustainable track. We’ll need a lot more than a short-term declining deficit to declare victory. We’ll need a plan that doesn’t just bring the deficit down but keeps it down on a sustainable basis.
The core problem is not a cyclical deficit driven by the ups and downs of the economy but an underlying structural deficit caused by a mismatch between future spending promises and current tax law.
The Congressional Budget Office (CBO) estimates that under current law the deficit will bottom out at $378 billion in 2015 before turning higher again, reaching $895 billion by 2023. Meanwhile, as a share of the...