The non-partisan Congressional Budget Office released its economic forecast for the next decade. It got little press attention, probably because it completely undermines the arguments for another massive COVID-19 stimulus bill.
President Joe Biden and Democrats in Congress continue to portray the economy as deep in a recession. In Wisconsin on Wednesday, for example, Biden said that “Now is the time we should be spending. Now is the time to go big.”
But according to the CBO’s economic forecast, real GDP this year will climb by 4.6%. Assuming that holds true, it would be the biggest annual increase in gross domestic product since 1999.
What’s more, GDP will have made up all the ground lost by the pandemic lockdowns by mid-2021, according to the report. By the time Biden starts spending his $1.9 trillion, the economy won’t be recovering anymore, it will be expanding.
Look deeper in the report and it shows that real GDP growth will exceed “potential GDP” – or what the CBO figures is the maximum sustainable level of economic growth – for the next four years.
What about jobs? According to the CBO, the unemployment rate will continue to fall this year, reaching 5.3% by the fourth quarter. For perspective, during the Obama-Biden years, the unemployment rate was below 5.3% for only 18 of the 96 months Barack Obama and Biden were in the White House.
The CBO expects job gains to exceed 5 million this year, and another 3 million next year.
This growth, the CBO says, will start bringing in a surge of tax revenue, with money raised from individual income taxes expected to climb by 5.6% his year, and an eye-popping 20% next year. It expects corporate tax revenue to rocket up by 53% next year and 21% the year after that.
As a result of this and the end of the previous COVID spending splurges, annual deficits will collapse from over $3 trillion last year to less than $1 trillion by fiscal year 2023.
The CBO expects deficits to start climbing again after 2024, even without any new COVID spending. Why? Because entitlement expenditures – for Social Security, Medicare, Medicaid, Obamacare – are growing at an average rate of more than 5% each year.
These are the programs that Biden wants to expand, once he’s done throwing taxpayer money at phony COVID relief efforts.
Keep in mind that all of the forecasts made by the CBO assume that nothing Biden proposes actually happens. Its forecasts are all based on current law.
In other words, the projected growth in GDP, jobs, tax revenues and the decline in deficits are all the result of policies approved by former President Donald Trump.
Not only is Biden’s plan not needed, it poses enormous economic risks.
Biden and company are brushing aside concerns that he could end up sparking runaway inflation. But former Obama economist Larry Summers explains that what Biden is pushing is “macroeconomic stimulus on a scale closer to World War II levels than normal recession levels (that) will set off inflationary pressures of a kind we have not seen in a generation.” Why take such a risk?
There’s also the issue that Biden’s plan assumes that today’s rock-bottom interest rates continue forever, making borrowing money to finance his liberal wish list painless. What if interest rates climb? Then payments on the massive national debt will explode.
The Foundation for Economic Education reports that University of Pennsylvania’s Wharton School of Business scholars warn “the skyrocketing government debt caused by the blowout legislation would undermine any gains in the medium-to-long term a minor boost in GDP growth from the stimulus.”
Add in Biden’s plan to massively re-regulate the economy, double the minimum wage, and so on, and he appears to be putting in place the pieces for a return to Jimmy Carter-style stagflation.
— Written by the I&I Editorial Board