Q But if economists, including the President's own economists, don't necessarily think that it's possible to do so without raising taxes on the middle class, how is that dealing candidly with the American people?
MR. GIBBS: Well, again, Jake, there are a series of things that have to be done. I think you'll actually hear an announcement from Treasury later this afternoon about how much money has to be borrowed versus what they thought was going to have to be borrowed and what will have to be borrowed as a result of financial stabilization.
In terms of cutting the amount of money that's needed, again, I think the President has been clear on this. The first thing that we can do -- the most important thing that we can do right now is get our economy growing again. We know that the deficit -- part of the reason that the deficit is up right now is that the economy has slowed down so much that tax revenues -- because it's what happens in an economic slowdown -- have regressed a lot. I think the President -- obviously we're going to have to make some decisions down the road on some of the President's legislative priorities and some of the things that Congress wants to do to evaluate how we move back towards -- on a path toward fiscal sustainability.
According to CBO:
CBO estimates that under the laws in place as of March 2009, the cyclically adjusted deficit will climb from 2.6 percent of potential GDP in 2008 to 9.0 percent in 2009 before falling to 4.7 percent in 2010 and 2.2 percent in 2011. The increase from 2008 to 2009 and the decrease in 2010 are the largest on record, reflecting primarily the effects of the TARP legislation, assistance to Fannie Mae and Freddie Mac, and the American Recovery and Reinvestment Act of 2009 (Public Law 111-5), which together will increase the deficit by $812 billion in 2009 and by $445 billion in 2010. (Without those costs, the cyclically adjusted deficit would be about 3.6 percent of potential GDP in 2009 and roughly 1.9 percent in 2010.)
So when we get to 2011, even if the economy is at full employment, there would be a $350 billion deficit. And it then rises, looking at the long-term budget outlooks prepared by former CBO and current OMB director Peter Orszag
and current director Doug Elmendorf
. According to the latter:
Under the extended-baseline scenario, the fiscal gap [the amount needed to stabilize the debt-to-GDP ratio -- kb] would amount to 2.1 percent of GDP over the next 25 years and 3.2 percent of GDP over the next 75 years. In other words, under that scenario (ignoring the effects of debt on economic growth), an immediate and permanent reduction in spending or an immediate and permanent increase in revenues equal to 3.2 percent of GDP would be needed to create a sustainable fiscal path for the next three quarters of a century. If the policy change was not immediate, the required percentage would be greater.
$350 billion about gets you there. So which way do you think the Congress and the Obama Administration will find that $350 billion? Did Gibbs' statements yesterday make that clearer to you?
Labels: economics, Obama, taxes