Deficit reduction remains a pipe dream

Despite deficits hurtling toward $1 trillion and more for the foreseeable future, Congress is unlikely to make any real effort to pull the red ink back to Earth anytime soon. In fact, it seems that the excess of spending over revenue will probably be even greater than official forecasts.

Another two-year agreement to raise discretionary spending caps, which most observers expect will occur, would increase projected deficits by some $2 trillion over the next decade, based on Congressional Budget Office estimates. Lawmakers might also extend expiring tax breaks, requiring additional Treasury borrowing. Any deal on an infrastructure program would also likely increase spending.

The pessimistic fiscal outlook is based on several factors, including an upcoming presidential election, which usually means Congress punts tough decisions and votes down the road; skepticism about Republicans and Democrats finding common ground on deficit reduction; and fears that a tax increase or spending cuts could tip the economy into a recession.

Another factor might be called the “Chicken Little” effect.

Despite warnings year after year that growing deficits and debt will cause an economic crisis, the economy is strong, inflation and interest rates are low, and there is no indication of a crisis anytime soon.

“The problem is that people have been warning about this for more than two decades, and there have been no economic consequences,” said Tom Kahn, a former longtime Democratic staff director of the House Budget Committee. “As a result, warnings like that run into a very skeptical audience of people who respond that we can continue borrowing without a problem. And those who issue the warnings feel like Chicken Little.”

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