Next president faces swelling U.S. debt
The budget deficit doubled in the past year, escalating the finger-pointing in Congress.
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CBO projections are based on the assumption that all expiring tax provisions will be allowed to expire and that Congress will not again pass legislation to curb the impact of the Alternative Minimum Tax on millions of middle-class families.Skip to next paragraph
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If these tax cuts are not allowed to expire – the CBO's "Alternative Budget Scenario" – the deficits get worse.
The nonpartisan Tax Policy Center estimates that the Obama plan would cut taxes by $2.9 trillion over 2009-2018; the McCain plan would reduce taxes by nearly $4.2 trillion.
Although Washington's capacity to ignore fiscal warnings is well established, budget analysts say that the news is now sufficiently alarming, especially the fallout from the housing crisis, that it could set off a national wake-up call.
"You'll hear a lot of excuses, such as: 'It's a slow economy, so there's nothing we can do about it.' It's convenient for politicians to find reasons why they can't possibly do anything, particularly in a campaign season," says Robert Bixby, executive director of the Concord Coalition, a public interest group that calls for fiscal responsibility.
But the fiscal fallout of the government takeover of Fannie Mae and Freddie Mac could grab public attention – and force politicians to take note.
"It has the potential to wake people up, because it could get bad," says Mr. Bixby. "That gets the public sufficiently aware of the government's precarious financial situation that people will force the government to do something."
Politicians and the public often ignore expected drains on the budget that just get worse. But a jolt to the system, such as the savings and loan crisis in the late 1980s, can change things politically.
"It linked the budget deficit with their daily lives, and that's the sort of thing that can get politicians to pay more attention," says Bixby.
CBO director Orszag says it's not possible to estimate how much the Fannie Mae and Freddie Mac takeover will add to government deficits. The key question will be how Congress and the White House Office of Management and Budget measure the companies' assets and liabilities when releasing its budget early next year.
"Politically, it may make a difference that in the first year the [new] president is in office we're going to have a deficit that is somewhere over $500 billion," says Jim Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities.