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$3 Trillion is not $4 Trillion

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Can't these guys count?

Credit rating agencies Moody's, S&P, and Fitch have explicitly warned that if Congress does not enact a fiscal consolidation plan totaling at least $4 trillion over the next ten years, the nation's Triple-A credit rating will be downgraded.

In this context, on July 25, competing proposals were released by the House and Senate that cut $3 trillion and $2.7 trillion over ten years, respectively. 

Are they kidding? The House and Senate are double daring the credit rating agencies to make good on their downgrade threat.

On the side of caution, one might imagine that in order to avert a downgrade, the only proposals on the table right now would reduce borrowing by at least $4 trillion.  Even on a conservative basis, it might have been wise for both chambers of Congress to overshoot the $4 trillion mark of minimum savings by several trillion more.  Why?

Because all of the baseline assumptions related to tax revenue by the Office of Management and Budget and the Congressional Budget Office are predicated on economic growth assumptions that are, to say the least, extremely rosy. 

The Office of Management and Budget's baseline scenario already has revenues rising from $2.174 trillion this year to $4.820 trillion in 2021.  For the savings under either proposal to be realized, revenues will have to grow by 120 percent in the next ten years, and the economy will have to practically double in size. 

If those numbers are wrong and revenue only rises to $3.5 trillion in 2021, the debt will actually increase by more than $7 trillion above the projected baseline, more than erasing any savings from either plan.

Get full story here.


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