Is the federal budget heading for unsustainable deficits or unsustainable surpluses?

It all depends on the long-term assumptions. 

Last week, the Government Accountability Office (GAO) issued an update of its long-term fiscal outlook for the federal government. As in prior reports,  GAO found that an extension of current law (the Baseline Extended simulation) leads to rising and eventually unsustainable debt “driven by a fundamental imbalance between revenue and spending, which, on the spending side, is driven by the aging of the population and rising health care costs.”

On the other hand, the President's Office of Management and Budget (OMB) released a new estimate last week showing that an extension of President Obama's budget policies would not just be sustainable but would lead to growing surpluses that would eventually pay off the national debt.

Not that OMB thinks this will actually happen. In fact, OMB calls the end result “unrealistic and undesirable.”

As explained by OMB in the Analytical Perspectives of the 2014 Budget, “These projections are not intended to be a prediction of future legislative action, nor are they intended to reflect explicit policy proposals for the years beyond 2023; rather, they are a mechanical extrapolation of the Budget policies.”

But in...

Most plans to put the federal budget on a more sustainable path make a crucial assumption: That today’s younger workers will pay more of their own retirement costs than previous generations have.

By setting aside more money for retirement, the thinking goes, these younger workers can enable the federal government to reduce the high projected growth of Social Security and Medicare. They should theoretically be able to do this because they have more time to save large amounts of money and to let those savings compound.

As The Concord Coalition has often noted, however, Washington already favors older generations in many ways. And younger Americans face a number of financial hurdles and future challenges that must be kept in mind.

Many of them have been hit hard by the last recession, struggling with a poor job market and – thanks to skyrocketing tuition costs -- large amounts of student debt. With companies cutting back on retirement and health care programs, many younger people who have jobs  do not receive the compensation or employee benefits that their parents did.

The large and growing federal debt, meanwhile, means that younger Americans can expect higher taxes and less assistance from the federal government...

Today the Senate Budget Committee considered the budget resolution that Chairman Patty Murray released yesterday. The blueprint calls for a mix of spending cuts and tax increases to reduce the deficit and lower the debt-to-GDP ratio. Under Murray’s plan, the deficit would fall to $566 billion (2.2 percent of GDP) by 2023. Debt held by the public would slowly but steadily fall from 78.5 percent in 2014 to 70.4 percent by 2023.

These are important goals, but whether the favorable trend shown on paper would continue beyond the 10-year window depends on the specific policies adopted by the relevant congressional committees in implementing the plan. As with any budget resolution, policy details are omitted. Yet the details that are available suggest that the plan avoids the type of reforms that would allow debt levels to continue to decline beyond the budget window -- the time period most crucial when looking at the nation’s real fiscal challenges.

For example, the proposed cuts in discretionary spending outweigh the health care savings by $100 billion. Moreover, total mandatory outlays show no reduction at all over the 10-year period relative to the CBO baseline despite the fact that mandatory programs represent a much larger fiscal challenge than discretionary programs. Murray’s budget thus continues the recent...

In his State of the Union Address President Obama declared: “Our government shouldn’t make promises we cannot keep, but we must keep the promises we’ve already made.”

It was good applause line, but it glossed over a key point: The promises we’ve already made are the ones we cannot keep.

It is widely accepted that current fiscal policy is unsustainable. By definition, that means something has to change. Yet, if we decide that all promises must be kept, we can’t change anything without “breaking a promise.”

The dilemma for policymakers in Washington is that for years they have made unfunded promises and there is no politically convenient way to reverse this.

The first thing to do is just face up to it.

That’s why a bipartisan group of former members of Congress included this warning among their findings from their Strengthening of America forum series last fall: “We cannot put our debt on a sustainable path without reductions in the projected cost of entitlement programs, cuts in discretionary spending and higher revenues.”

Strictly speaking, any of those things could be characterized as breaking a promise.

It could be argued, for example, that...