April 16, 2014

CBO Report Spotlights Difficult Choices That Must Be Made

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

We can’t keep this up. That’s the central message in a new report from the Congressional Budget Office that looks out over the next few decades and explains why the federal government is on an unsustainable course.

The CBO report presents two scenarios. One is based on current law, including the assumptions that more Americans will be paying the alternative minimum tax (AMT) and that the tax cuts enacted in 2001 and 2003 will expire, while non-defense discretionary spending would decline to the lowest percentage of GDP since World War II. Under this scenario, federal debt held by the public would climb from an estimated 62 percent of GDP this year to about 80 percent by 2035.

The other, more plausible scenario, assumes several changes in current law that are widely expected. One is that most of the 2001 and 2003 tax cuts would be extended along with AMT relief. Another is that scheduled Medicare payment cuts to doctors will not happen and that some cost restraints from this year’s health care legislation would not continue after 2020 (because according to CBO they “might be difficult to sustain”). Under this scenario federal debt would soar past its historical peak of 109 percent of GDP by 2025 and would hit 185 percent in 2035.

Joshua Gordon, Concord’s policy director, says in a blog post that the differences between the two scenarios show clearly that although Congress makes incremental decisions year-after-year, sometimes in order to hide the costs of current policies, the long-run budgetary impact is substantial. But, more importantly, these continual sunsets and extensions allow those policy choices to escape the scrutiny that new policies would receive.

Another key lesson in the CBO report, Gordon says, is that even if Congress follows the provisions of this year’s health care legislation, it would not sufficiently restrain the growing costs of Medicare and Medicaid. “More health care reform is needed,” he argues, “and the sooner the political system is able to build on the reforms, the better.”