Here are three facts about how the 10-year budget outlook has changed in the past year: 1) the fiscal cliff deal raised $600 billion in new revenue; 2) the sequester, if left in place, cut spending by $1.2 trillion; 3) the CBO revised its projection for federal healthcare spending down by $600 billion.
Harvard historian Niall Ferguson has a counterfactual take. Here's how he described how our debt trajectory changed the past year:
A very striking feature of the latest CBO report is how much worse it is than last year's. A year ago, the CBO's extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year's long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year.
This isn't a difference of opinion. It's incorrect. But it's incorrect for reasons that will escape casual readers.
As Brad DeLong points out, Ferguson is playing games with the baseline. He's trying to make you think that the debt is growing faster than we thought. But debt is slower than we thought. It's only growing faster than a special fantasy projection that the CBO calculated last year when nobody knew what was going to happen with the Bush tax cuts.
Last year the CBO calculated two long-term budget outlooks to deal with uncertainty about taxes. The first scenario assumed that all the Bush tax cuts would expire. Pure fantasy. The second scenario assumed that none of the Bush tax cuts would expire. Less fantastical. Ultimately, we extended most of the Bush tax cuts. Ferguson is trying to count this as a $3.9 trillion loss compared to a political fantasy where taxes went up by $4.5 trillion.
But here's the thing: Everybody knew the fantasy baseline was a meaningless fantasy from the beginning. Even Niall Ferguson.
At least he seemed to know that in 2009, 2010, 2011, and 2012. Back then, the alternative fiscal scenario was the only thing he talked about, because it was, in his words, "the more likely of the two." Here's but one example, from 2011:
According to the Congressional Budget Office’s alternative fiscal scenario—which it sees as politically more likely than its baseline scenario—the federal debt could hit 344 percent of GDP by 2050. Interest payments would absorb nearly all federal tax revenues.
Ferguson was right to talk about the alternative fiscal scenario the past few years, and he would have been right to continue to talk about it today as the point of comparison. But he doesn't. And that leaves him with a rather obvious problem: How can he explain our supposedly darkening debt outlook when we just raised taxes and cut spending? Hmm. How about saying the CBO says it's all about high debt causing low growth!