At the end of January, the Congressional Budget Office (CBO) released both its current year forecast and long-term projections.
Assorted headlines across various news organizations read “Budget Deficit to Break $1Trillion Despite Strong Economy.” This is not good news by any stretch of the imagination, but then the headline isn’t exactly accurate.
I say this strictly as a numbers person. The CBO numbers may be spot on, but our nation doesn’t operate under what I would consider to be a budget according to the traditional meaning of the word budget.
What we really have is a band aid system with a lot of spending appropriation bills alongside plenty of “auto-pilot” spending that’s pre-ordained as part of what are known as continuing resolutions.
Our elected officials on both sides of the aisle apparently can’t resolve their differences, and as a result we continue moving forward on autopilot. They’re simply not good stewards of our tax dollars.
For example, the current budget is $4.6 trillion. In the process of spending that, the government will have to incur 22 cents of debt for every dollar it spends. I am not aware of any household or any business that could function long term in such a manner. But, that's precisely what Uncle Sam is doing.
The CBO grinds out numbers based on the parameters provided. Sometimes the projections are accurate and on other occasions the forecasts miss the mark by a significant amount. Whatever the case, the CBO is still the government-sanctioned organization that our nation looks to for guidance.
In a recent report the CBO pointed out that we lost $377 billion of tax hikes based on the repeal of the “Cadillac Tax” on high-cost health plans. They also project a slowdown in the economy when the current income tax rates expire after 2025.
The bottom line is clear: When spending and politics intertwine, we end up with deficits. CBO Director Phillip Swagel recently said, “Changes in fiscal policy must be made to address the budget situation, because our debt is growing on an unsustainable path”.
As a financial advisor, I’m often asked what keeps me awake at night. With all of the financial plans I’ve implemented for clients, our nation’s unsustainable spending and our ballooning deficit are the major culprits. Because the deeper the debt the greater the potential for something to derail their plan.
The debt we’re passing on to our children and grandchildren is a very serious cause for concern. As we move closer to the election, I suspect we’ll hear more and more promises from politicians. If we can’t afford our current spending habits, I question how we’re going to afford new and additional spending.
Taxing the wealthy is a popular but unrealistic solution. Our debt is so large that taxing the wealthy at an exorbitant rate would barely make a dent in the overall picture.
Nobody likes to tighten their belts, but at some point in time we have to look in the mirror and admit there needs to be change. It doesn’t matter whether or not you agree with the specifics of the CBO’s forecast. In the big picture, it clearly indicates that we’re on an unsustainable path. It’s time for our elected officials to improve the stewardship of our tax dollars.