We may agree or disagree with the CBO’s projections, but they are the most authoritative we have. President Obama has been vocal with respect to the fiscal policies he wants, and each item on his wish list can be scored using the CBO’s August study. Therefore, we can approximate the five-year deficits that would result if President Obama gets what he wants. This is not rocket science. Anyone can do this using the CBO’s excel files.
The CBO’s bottom line: If we go over the fiscal cliff, the second Obama administration will accumulate $1.5 trillion in deficits for 2013-2017 ($300 billion per year), for a “modest” deficit of less than two percent of GDP. If Obama gets his full wish list and avoids the fiscal cliff, the CBO’s alternate fiscal policy projections yield a cumulated 2013-2017 budget deficit of $4.5 trillion. In this case, the second Obama administration will run annual deficits of almost a trillion dollars a year. Only this time round, Obama does not have the convenient excuse of a deep economic crisis inherited from the previous administration. As he assured voters in the election campaign – the recovery is underway. Do not worry.
Remember that the CBO’s $1.5 trillion baseline-budget assumes that everyone’s taxes are raised and automatic spending cuts go into effect, more middle class families fall into the Alternative Minimum Tax trap, and eligibility periods for unemployment revert to previous rates. Payments for food assistance and other income security benefits are cut, and Congress really does, after years of threats, cut payments to Medicare physicians. These events are unlikely to happen, unless the fiscal cliff talks fail entirely or, if they do, no remedial action is taken in the early 2013.