Congressional Fiscal Responsibility and other myths

Teaser line 1: "Yes, you read that correctly. In the strange world of Washington budgeting, lawmakers can pay for new spending by making it easier for corporations to underfund employee pensions."

Teaser line 2: Under somewhat realistic assumptions, the CBO estimates that "the U.S. economy ceases to exist after 2027."

Please explain, Watson.

According to Marron, the issue behind #1 is that giving companies more leeway to underfund employee pensions pushes expenses into the future, beyond the 10 year budget window analyzed by the CBO. But since companies' pension plan payments are partially tax deductible, allowing them to postpone them brings in more tax revenue, allowing Congress to pay more today for other things. Really, no money is added to the system; it's just funged around a bit.

The second teaser compares two scenarios the CBO investigated. In one, Congress leaves intact all current policy trajectories: the Bush tax cuts expire, the alternative minimum tax isn't adjusted, etc. In the other case, Congress "gives into temptation" and provides tax cuts everywhere it can. In the first scenario, debt rises to 80% of GDP form 60% today. "Of course, no one believes that Congress will really be that disciplined." In the second, the debt skyrockets to over 185% of GDP by 2035 and overwhelms the CBO model of the economy. Any way we look at it, though, our debt burden is growing and politics suggests it's going to grow faster. He concludes:

I don’t really think that the U.S. economy will blink out of existence in 2027. We will find a way a muddle through. But to do so, we need to face up to CBO’s bleak vision of our fiscal future and the temptations that lawmakers will face. Now is not the time for sudden austerity—the G-20 bandwagon non-withstanding—but it is the time to develop a plausible plan to bring taxes and spending into long-run balance.