WASHINGTON — The Concord Coalition said today
that new
projections by the Congressional Budget Office (CBO) clearly demonstrate the
growing budgetary challenges of an aging population and the need to confront
hard policy trade-offs. With such trade-offs, the budget can be brought back
into balance. Without them, deficits will persist and grow worse over the coming
decade — even assuming a strong economy.
WASHINGTON — The Concord Coalition said today
that new
projections by the Congressional Budget Office (CBO) clearly demonstrate the
growing budgetary challenges of an aging population and the need to confront
hard policy trade-offs. With such trade-offs, the budget can be brought back
into balance. Without them, deficits will persist and grow worse over the coming
decade — even assuming a strong economy.
“The good news in today’s report is that the budget could be
brought back into balance as soon as 2012 and remain in balance through 2016 if
Congress and the President follow current law. The bad news is that they seem to
have no intention of following current law. Instead, they seem intent on
pursuing tax and spending policies that will drive the budget far deeper into
deficit rather than return it to balance,” said Robert L. Bixby Executive
Director of The Concord Coalition.
The new CBO report shows a gradual improvement in the budget’s
outlook over the next decade even as the baby boom generation begins to retire.
This deceptively benign outlook is not because spending on health care and
retirement programs is held in check. To the contrary, between 2006 and 2016 the
cost of Social Security, Medicare, and Medicaid will increase by 24 percent–from
8.7 to 10.8 percent of GDP. As a result, these three programs, which consumed 42
percent of federal spending in 2005, will consume 56 percent by 2016. The reason
for the baseline improvement is that it assumes policymakers will hold
discretionary programs, including defense, to just 2 percent growth annually —
as opposed to 8 percent last year and a 5.2 percent annual average rate from
1994 through 2004 — and that they will not enact new legislation to extend any
expiring tax cuts or provide relief from the Alternative Minimum Tax (AMT).
“These assumptions will severely test lawmakers’ ability to make
the necessary trade-offs. If Congress and the President want to achieve the
favorable result shown in the baseline, they will have to choose among
priorities. The CBO baseline shows that they can fully fund all entitlement
promises for the coming decade and still balance the budget if they sharply
curtail other spending and allow the tax cuts to expire on schedule. If Congress
and the President choose to extend all of the tax cuts, they will need to
sharply curtail entitlement spending — far more than the $99 billion of savings
in the pending reconciliation bill — and maintain tight limits on discretionary
spending in order to achieve a balanced budget. Anything else leads to large and
growing deficits,” Bixby said.
The Concord Coalition released an alternative baseline scenario
using plausible policy assumptions based on recent trends and legislative
proposals. It shows a very different picture than the official baseline.
Assuming that appropriations rise at the same rate as economic growth (GDP), not
inflation, and that funding for operations in Iraq and Afghanistan will slow
gradually from 2006 and that relief from the AMT is extended, CBO’s 10-year
baseline deficit grows from $832 billion to $3.1 trillion. If all expiring tax
provisions (including the 2001 and 2003 tax cuts) are made permanent along with
these other changes the 10-year deficit grows to $5.3 trillion.
“When Congress and the President begin work on the FY 2007
budget next month they should observe the warning signs in CBO’s report —
specifically that spending pressures will begin to
ratchet up substantially by the end of the decade as the baby boomers begin to
retire and that current fiscal policy remains unsustainable,” Bixby said.
CBO concludes in today’s report: “A substantial reduction in the
growth of spending and perhaps a sizable increase in taxes as a share of the
economy will be necessary for fiscal stability to be at all likely in the coming
decades.”
“The real question is whether the President and Congress are up
to this challenge or will they be content to let these developing problems
fester in hopes that future lawmakers — with fewer choices and perhaps acting
under crisis circumstances — can find solutions,” said Bixby.
To view the Concord Coalition’s plausible
baseline projection visit:
http://www.concordcoalition.org/issues/fedbudget/charts/0601-plausible-baseline.pdf
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CONTACT:
Tristan Cohen
(703) 894-6222
communications@concordcoalition.org
