The size of federal deficit is often in the eye of the beholder.
When Congressional Budget Office director Douglas Elmendorf testified before the super-committee yesterday this week, he laid out three different ways to measure the problem: the committee could use a “current law” baseline, which assumes the planned expiration of the Bush tax cuts beginning in 2013, and a 30 percent reduction in payments to Medicare providers, which is scheduled to happen at the end of this year. Or the committee could use an “alternative fiscal scenario” baseline, which assumes Congress acts to extend the Bush tax cuts and stalls the Medicare provider cuts. Thirdly, the committee could basically make up its own baseline that tweaks the others to perceived political reality in whatever way it deems reasonable.
But here’s the thing: if the “current law” baseline is used, the deficit problem virtually disappears. The expiration of the Bush tax cuts—which, remember, were sold as temporary reductions that would direct a large surplus back to (largely wealthy) taxpayers—would alone create over $4 trillion in revenue.
During yesterday’s hearing, there was a rather remarkable exchange in which Representative Chris Van Hollen got Elmendorf to admit that, indeed, if the super-committee adjourned immediately, and if Congress left Washington for the next ten years—thus letting the tax cuts expire—the deficit would actually be reduced by a far greater amount than anything the super-committee is aiming to achieve:
This underscores the oft-repeated point that the Bush tax cuts are the largest current policy driver of the deficit. Even former Federal Reserve Chair Alan Greenspan believes  they should be rescinded—that’s what he told a Senate panel yesterday.
In his testimony, Elmendorf laid out the cold reality: given the large number of baby boomers due to retire within the next ten years, and given the budget-busting tax-cuts, something has to give.
“I think really the fundamental question for you is not how we got here, but where you want the country to go, what role do you and your colleagues want the government to play in the economy and the society?” he told the committee. “If you want a role that has benefit programs for older Americans, like the ones we’ve had in the past, and that operate for the rest of the government like the ones we’ve had in the past, then more tax revenue is needed than under current tax rates.”
“On the other hand, if one wants those tax rates, then one has to make very significant changes in spending programs for older Americans,” he continued.
Those are crucial choices, and given the comments from the super-committee’s austerity hawks during Elmendorf’s testimony, we know their answer—cut away. Democrats like Van Hollen, meanwhile, will try to preserve government benefit programs with more revenue.
That is a debate worth having—but let’s not pretend there’s some kind of deficit crisis. If Congress just does nothing, the deficit will wither away.