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Tax Increases, Debt Limit Loom Over Budget Debate

Author: Peter R. Orszag, Adjunct Senior Fellow
February 14, 2012
Bloomberg.com

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Most people understandably won't make it to Table 6-2 of the Analytical Perspectives companion volume released with the Obama administration's budget. This table, though, foreshadows the fight that will come at about this time next year -- and is thus one good way to view the budget as a whole.

Table 6-2 shows that even with a somewhat sunny outlook for economic growth this year, the amount of government debt that is applicable to the debt limit is projected to reach, by the end of September, $16.3 trillion. The debt-limit itself currently stands at $16.4 trillion. So by next January, if not sooner, we will again be debating a debt-limit increase -- at the same time that significant spending reductions and tax-cut expirations are scheduled to take effect. The journey through this fiscal maze next year will make last summer's debt-limit debate look like child's play.

In the meantime, we should keep five basic fiscal principles in mind. The administration's budget abides by most of them, albeit to varying degrees.

First, in the short run, we should continue to support the economy, which is finally showing some glimmers of life, with additional stimulus. The apparent breakthrough on extending the payroll-tax holiday, which is scheduled to expire at the end of this month, is encouraging from this perspective. President Barack Obama's budget proposes even more short-term support for the economy. And although the additional measures -- more spending on roads, bridges and other infrastructure projects, for example -- may not be enacted this year, the administration deserves kudos for continuing to propose them.

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