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Home Publications Blogs Beat the Press Can Someone Teach Steve Rattner How CBO Does Its Projections?

Can Someone Teach Steve Rattner How CBO Does Its Projections?

Wednesday, 11 December 2013 05:20

Steve Rattner is upset that Congress isn't voting to cut Social Security and Medicare, complaining about this fact in a NYT column this morning. Much of the problem seems to stem from Rattner's misunderstanding of budget projections and his failure to pay attention to recent developments in health care spending.

At one point Rattner gives us the distressing news that a do nothing scenario will give us a debt to GDP ratio by 2035 of 99 percent (@ 19 percentage points less than the post World War II peak) then tells us:

"That may be too rosy a picture. The Congressional Budget Office assumes robust growth over the coming decade — not a single year of recession and three annual G.D.P. increases of about 4 percent beginning in 2015. (By comparison, the G.D.P. is likely to grow by just 1.7 percent this year.) Slower growth means a higher debt-to-G.D.P. ratio."

Actually CBO constructs long-term projections that are supposed to average out the impact of recessions and the more rapid growth that usually follows them. This explains the three years of 4 percent GDP growth. The economy is currently 6 percentage points below its potential according to CBO's estimates. These three years of rapid growth would allow it to make up this gap. The average growth rate projected for the next 22 years is 2.36 percent, which hardly seems especially fast given the economy's current position.

The other part of the story is that Rattner apparently missed is the sharp slowdown in the growth of health care spending we've seen over the past five years.  This has already led CBO to substantially lower its projection for health care spending in future decades. If CBO were to fully incorporate the recent slowdown in health care spending in its projections, then the primary (non-interest) budget would be nearly balanced for decades into the future.

Comments (4)Add Comment
health care costs
written by Peter K., December 11, 2013 10:20
He does admit "According to projections by the Committee for a Responsible Federal Budget, the nation’s 2023 debt picture has improved by almost $1 trillion since February, as a result of a variety of factors, including higher revenue collections and slowing health care costs."

But yes the Democrats need to purge the party of guys like Rattner who want to cut entitlements and lie about the facts. Yesterday the NYTimes ran Feldstein, a Republican who wrongly argued like Rattener that Democrats should trade short term fiscal stimulus for cuts to long-term entitlements.

Rattner Didn't "Miss" Anything
written by Paul Mathis, December 11, 2013 10:21
Rattner apparently missed is the sharp slowdown in the growth of health care spending

Stevo simply ignores any facts inconsistent with his "analysis". He regularly appears on "Morning Joe" - Your Small Government Headquarters - and does the same thing. Just ignore him and save yourself the aggravation.
Is this the Rattner that cost the US billions in the auto bailout...
written by pete, December 11, 2013 11:33
Why does he have any credibility? The near fraudulent transfer of wealth to the autoworkers from bond holders was clever, but not honest.
written by Dryly 41, December 11, 2013 12:28
Would someone teach Steve Rattner what caused the massive increase in the Gross Federal Debt since 1981?

In 1946 The Gross Federal Debt amounted to 121.7% of GDP. Each post WW II president, especially Truman, Eisenhower, and, Kennedy/Johnson, reduced it to a very acceptable 32.5% of GDP.

Then came Ronald Reagan with "supply side" economic tax cuts primarily for the wealthy. In the December 1981 issue of the Atlantic, William Greider quoted Reagan's Budget Director David Stockman admitted that "supply side" war really a "Trojan Horse" to reduce the top rates of the progressive tax system. In his book Stockman called "supply side" a "crackpot economic theory and "fiscal knownothingism". George H.W. Bush called it "Voodoo Economics".

But Reagan did it. Budget deficits in each of the Reagan eight years increased the Gross Federal Debt from 32.5 of GDP to 53.1%. Four more years of deficits under George H.W. Bush increased it further to 66.1% of GDP.

Clinton increased taxes, had 4% unemployment, balanced budgets, and, reduced the Debt to 56.4%

Bush II had two rounds of "supply side" tax cuts in 2001 and 2003, eight more years of budget deficits, and, increased the Gross Federal Debt to 85.1% of GDP. In addition, he presided over the collapse of our entire financial system after Lehman Bros. filed for bankruptch on September 15, 2008 leaving a crippled economy.

In 1983 Reagan signed a FICA payroll tax increase to create a surplus which working men and women have been paying since. As of December 31, 2012 the Social Security Trust Fund had a reserve of $2.6 Trillion dollars.

Social Security did not contribute one thin dime to the Debt. "Supply side" tax cuts favoring the wealthy like, well, Steve Ratner caused the massive increase in the Debt.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.