A One-Step Plan for Erasing the Federal Deficit: Do Nothing

Last Updated Aug 30, 2011 11:45 PM EDT

How can Congress and President Obama possibly balance the nation's books? Do nothing.

According to the Congressional Budget Office, under current law the federal deficit will fall from 8.5 percent of GDP this year to 6.2 percent in 2012 (see chart at bottom; click to expand). If lawmakers were to keep on doing nothing over the next decade, the budget gap would continue declining to just over 1 percent of GDP by 2021. Public debt also would sink to far more manageable levels. As one wonk with the Center for American Progress, a Washington think-tank, puts it:

If Congress is unable to agree on ways to solve the deficit problem over the next 10 years -- if there is a deadlock and nothing passes -- then our federal budget deficit will all but disappear.
There is one Capitol Hill-sized fly in the ointment, of course -- politics (but of course). The CBO numbers assume that Congress will do things like let the Bush-era tax cuts expire next year as planned and cut Medicare payments to doctors. The "do-nothing" path to fiscal responsibility also assumes that government spending will continue to sink over the next 10 years as mandated under the recently passed debt-ceiling deal.

Wrong problem, wrong solution

Obviously, these are big "ifs." Republican leaders have practically sworn a blood-oath to preserve tax cuts for wealthy Americans, while health-care industry interests have previously succeeded in blocking proposals to lower Medicare reimbursement. Over the longer term, meanwhile, twiddling our thumbs as health care costs soar is a bad idea. It's also important to ask how phasing out tax cuts will affect the economy (Not much, according to many economists, since most of those reductions went to the rich, who aren't going to quit spending and investing just because their taxes return to Clinton-era levels.)

Still, it's worth weighing the economic impact of standing pat against other proposed deficit-reduction plans. CAP public-policy expert Michael Lind notes that Obama's fiscal commission, the so-called Simpson-Bowles plan, would raise the federal debt by about $1 trillion more than simply doing nothing. A budget plan passed earlier this year by House Republicans, which would effectively eliminate Medicare and Medicaid, would saddle the U.S. with an additional $1.5 trillion in debt.

For the public, the CBO forecast highlights the great misconception at the heart of the deficit debate -- that closing the budget gap over the long-term requires immediate government spending cuts. Cuts that, by the way, are sure to slow economic growth. If that's the plan, then doing nothing is better than doing something.

Chart courtesy of the Center for American Progress

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    Alain Sherter covers business and economic affairs for CBSNews.com.