More than a year before President Donald Trump and congressional Republicans reach a deal to avert a “fiscal crisis” in the U.S., the economy could be coming apart in an “existential crisis,” according to a report by the Congressional Budget Office.
“This fiscal cliff is coming,” wrote Ryan Lizza, the budget director of the nonpartisan Congressional Budget Committee, in an op-ed published Sunday in The Hill.
“In my experience, if you’re a politician who has spent most of your career fighting against fiscal restraint, this fiscal cliff may not even be on your radar.”
The CBO released its report last week as the House of Representatives and Senate are struggling to come to agreement on a short-term spending bill.
Both chambers are expected to vote on the bill in the coming days.
But the CBO’s projections come with a caveat.
“The fiscal cliff will not necessarily be averted, but the fiscal path will be considerably more difficult than it was before,” the report says.
The CBO estimates that the impact on the economy would be negative $1,700 per person per year in 2021 and $1 $3 trillion per year by 2027.
The CBO has a variety of reasons for the grim forecasts.
The first is that the GOP has made it clear that it will not back a shortsighted deal to reduce the debt ceiling.
In the past, the GOP also has been against raising the debt limit.
This year, Republican leaders have insisted on doing both, with the goal of avoiding the fiscal crisis.
But, as Lizza notes, the CBO warns that a deal that ends in a “massive, automatic default” could have serious consequences for the economy.
The nonpartisan agency warns that the debt could be “in the trillions” and “the financial system will collapse.”
The other issue with the CBO estimates is that they ignore a number of factors that are expected during the fiscal cliff negotiations, including the potential for an economic recession.
That could leave the debt held by the public at $20 trillion or higher for years to come.
The debt will remain in the $20 billion range as long as it is held at current levels, and it will grow by $3.2 to $3,735 per person in 2021.
This is not bad, but that will put the nation on the path to a “deficit of $1 trillion or more,” according the CBO.
The report also warns that if the federal government defaults, the U,S.
Treasury will need to borrow to finance the debt.
That would cause the economy to “tend to contract at a rate greater than 1.5 percent per year, and would lead to the national debt exceeding $20 Trillion by 2028.”
The final point is that if Congress doesn’t agree to a short term spending deal by September 15, the economy will be “at risk of a permanent fiscal crisis,” the CBO says.
“That, in turn, could lead to a temporary and prolonged reduction in discretionary spending.”
The budget agency’s analysis is based on the assumptions that the economic outlook remains “very good” and that the nation is “well on its way” to a balanced budget by 2025.
In other words, the country is still on track to meet its spending goals.
But Lizza warns that such a plan could not be made possible by “any one party or any one policy.”
The full report is available online here and in PDF format here.
The report concludes that the country will still be on track for a balanced spending plan by 2026, which will mean that the economy is in “good shape” and the national deficit will be in the “low teens” by 2031.
The nonpartisan agency says the “uncertainty of a fiscal cliff deal is causing significant concern among economists, but this is not a crisis.”