Kids, put on some good clothes and get in the car! We’re going out to celebrate! As it turns out, the country is only $1.28 trillion short this year.

The nonpartisan Congressional Budget Office released its updated Budget and Economic Outlook today (downloads as a pdf) and it’s not all that bad. Okay, it’s not all that good either. But with the way the political parties have been bickering back and forth at each other over the summer, I was getting the feeling that things were as bad as they could possibly be. It turns out that they’ve been worse. Projections indicate that this year’s budget will only be the third worst deficit in the past 65 years – last year and the year before that rank higher.

So good news, right?

Makes you think maybe things are getting back to normal?

Only if your definition of normal still includes trillion dollars’ worth of debt.
But still. It’s getting, er, better. Let me break it down for you.

The CBO used the word recovery seven times in the seven page report. It only used the word recession three times and always to refer to past tense. That’s seems positive.

Here’s what else is in the report: the word tax. It’s used 25 times. That’s right, 25 times in 7 pages. I’m sensing a theme.

How does tax influence the big picture? The CBO notes early on in the report that it expects real GDP to increase by 2.3% this year and by 2.7% next year. However, that growth is predicted to slow in 2013 due to “federal tax and spending policies.” Yep, we’re back to arguing about the so-called Bush era tax cuts. They were, as you might remember, extended under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010… until 2013.

Curiously, the CBO assumes that current tax law won’t change (I wonder if they know something that we don’t) and the predictions throughout the report reflect that notion. So, keep that in mind when you read that the overall deficit will fall to 6.2% of GDP in 2012; 3.2% in 2013; and average 1.2% of GDP in 2014 to 2021. That assumes that the Budget Control Act of 2011 – or what you and I are calling the Debt Ceiling Fix – stays in place and that tax revenues will go back up after the current tax cuts expire.

The CBO also issued a not so veiled warning that making changes to exist law (a/k/a extending those tax cuts) could result in “larger deficits and much greater debt.” Specifically, the CBO notes that if most of the provisions in the 2010 tax act were extended and if the AMT was indexed for inflation and if cuts to Medicare’s payment rates for physicians’ services were prevented, the annual deficits from 2012 through 2021 would average 4.3% of GDP (compared to those figures in the preceding paragraph. That means – and get ready for this one – that debt held by the public would reach 82% of GDP by the end of 2021, higher than in any year since 1948.

Spending policies don’t remain unscathed either in the report. The CBO notes that higher levels of spending together with stagnant revenues will cause “federal debt to skyrocket.” Called out as a particular concern are costs associated with the “new” health care law.

The CBO predicts that nearly $8.5 trillion would be added to the national debt over the next 10 years if the tax cuts and certain spending programs are kept in place. The national debt now stands at more than $14.6 trillion. If you do the math, that’s $23.1 trillion. And I’m going to write that out for you because I think all of the zeroes make a pretty significant visual impact, so here you go:

$23,100,000,000,000

It looks like binary code.

Or said another way: it’s $23.1 million million.

So what’s the solution to a potential increase in national debt? According to the CBO:

Policymakers will have to substantially restrain the growth of spending, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches.

Stop spending and keep tax revenues level. Hmm… Where have I heard that before?

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Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.

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