The chart below is an “apples to apples” comparison which uses the “alternative fiscal scenario” assumptions for both the 2013 long-term outlook and the 2009 long-term outlook. It shows the CBO forecast of debt to GDP ratio.Before one goes bonkers over the prospect that Federal debt will be 600% of GDP 50 years from now, let me turn the microphone over to Ezra Klein:
The CBO has come back with two projections. One is a simple, mechanical projection of future deficits based on current law. Everyone pretty much ignores this analysis, because, in recent years, current law has been a poor predictor of future policy. The law said, for instance, that all the Bush tax cuts would expire at the end of 2012 and that huge Medicare cuts would be imposed. Everyone knew that Congress wouldn’t let that happen, and that the current-law projection was wrong. Recognizing this, the CBO constructed another projection it calls the “alternative fiscal scenario.” A better name might be the “Washington is incredibly irresponsible” scenario. Under this model, all of President George W. Bush’s tax cuts are extended, the automatic budget cuts known as sequestration neither happen nor are replaced by other cuts, the cost controls in Obama’s Affordable Care Act are repealed, spending on Iraq and Afghanistan continues indefinitely, and so forth.We did have incredibly irresponsible fiscal policy during the Reagan and Bush43 Administrations. And had Mitt Romney won in 2012, we were told we would get even more tax cuts with little clues as to how they would be paid for. In fact, Romney promised to keep defense spending high and to repeal Obamacare. So – Dr. Taylor’s graphs are a nice way of demonstrating the fiscal future had his candidate won.