Who cares about the federal budget? We all should

At a donor event at Mar-a-Lago recently, President Donald Trump said, “Who the hell cares about the budget?” Indeed, with budget deficits on his watch tipping into the trillions, Trump does seem not to care. Gone are the days when Republicans would criticize profligate spending as they did during the Obama years. Within days of Trump’s devil-may-care question, the Congressional Budget Office, charged with producing forecasts of the economy and federal budget, projected trillion-dollar deficits for the foreseeable future.

Congress needs unbiased analyses when it comes to budgetary concerns, even if the president is on record as not caring. But evidence suggests that the office’s forecasts are far from unbiased, though this isn’t its fault. Since 1997, the office has made 187 forecasts of federal revenues, spending and debt. But the law requires it to incorporate certain assumptions into its forecasts, even if those assumptions are unrealistic. To give one example, these required assumptions contributed to a projection in August 2011 that the economy would grow at a dot-com boom pace starting in 2014. But by 2014, the economy was actually growing at a post-dot-com crash pace.

If the forecasts were unbiased, we would expect the numbers to be too high about as often as they are too low. Yet, of its 187 forecasts, 80% over-predicted federal revenues, 60% under-predicted federal spending, and 80% under-predicted the debt. Predictions are biased in a decidedly rosy direction. But by how much?

When the office forecasts tax revenues 10 years into the future, its prediction is typically 26% too high. When it forecasts federal spending 10 years into the future, its prediction is typically 10% too low. And that’s just for the 10th year.

The office typically over-predicts revenues and under-predicts spending in each year leading up to that 10th year. Add up all those “rosy in both directions” errors, and the CBO ends up with deficit projections that are much rosier than reality. And those deficits accumulate into much more future debt than what the CBO forecasts. On average, the forecast for the debt 10 years in the future is around 40% too low.

But, knowing these numbers, we can adjust the predictions by the office’s average historical error to determine what is more likely to happen.

In the latest report, the office predicts that the deficit will rise from $1 trillion today to $1.4 trillion by 2029. If this prediction is as rosy as previous predictions, we can expect the deficit to hit $2 trillion by 2024, and in excess of$3 trillion by 2029.

The office projects the debt will be $34 trillion by 2029. Adjusting for its average historical error, we can expect the debt to be almost $50 trillion by that time. If that sounds unbelievable, note that in 2009, the projected debt today would be $16 trillion. In fact, the debt — now $23 trillion — crossed the predicted $16 trillion mark seven years ago.

As the debt rises, the annual interest on it will go from consuming 18% of tax revenues today to almost one-third by 2029 — and even then, only if the Federal Reserve keeps holding interest rates down. If Trump doesn’t care about this, and there is no evidence to suggest he does, we can get ready for ever more spending, which will escalate the amount of taxes needed simply to cover the interest on the debt.

What lies at the end of this seemingly endless parade of spending is something anyone can predict: insolvency.

Antony Davies is associate professor of economics at Duquesne University. James Harrigan is managing director of the Center for the Philosophy of Freedom at the University of Arizona. They wrote this for InsideSources.com.