The Concord Coalition today urged lawmakers to take
note of the first ever annual deficit projected to exceed $1 trillion and a
post World War II high of 8.3 percent of GDP, and take steps to prevent deficits
of this magnitude from becoming the norm. Concord warned that any attempt at
economic stimulus must be coupled with steps to improve the nation’s longer
term fiscal outlook. Concord also updated its “plausible baseline” reflecting
reasonable adjustments to the new Congressional Budget Office outlook which now
shows a 10-year deficit of $10.3 trillion.
The Concord Coalition today urged lawmakers to take
note of the first ever annual deficit projected to exceed $1 trillion and a
post World War II high of 8.3 percent of GDP, and take steps to prevent deficits
of this magnitude from becoming the norm. Concord warned that any attempt at
economic stimulus must be coupled with steps to improve the nation’s longer
term fiscal outlook. Concord also updated its “plausible baseline” reflecting
reasonable adjustments to the new Congressional Budget Office outlook which now
shows a 10-year deficit of $10.3 trillion.
"While much attention will be paid in the coming weeks to the size and
contents of a fiscal stimulus plan, it will be important for policymakers to
keep in mind the bigger picture presented by the Congressional Budget Office.
The budget outlook over the coming years demonstrates the extent of fiscal
weakness this country faces as it heads into the baby boomers’ retirement
years. This weakness will make it even more difficult, yet more important to
address our projected long-term fiscal imbalance,” said Robert L. Bixby,
executive director of The Concord Coalition.
“The
biggest factor missing from CBO’s recent baseline is the implication of an
economic stimulus. While many economists acknowledge the merits of a stimulus
for the next two fiscal years, what must be avoided is a costly bargaining
process in which support for proposals with dubious bang for the buck and
potential long-term costs is exchanged between Democrats and Republicans in the
name of ‘getting something done.’ As the size of the expected package rises
this risk will increase. In an atmosphere of crisis, attention can easily be
diverted from the need for long-term fiscal discipline,” said Bixby.
The CBO report shows that the economic slowdown has led to a 19 percent
increase in outlays for fiscal year 2009 from last fiscal year, and an almost 7
percent decrease in tax receipts. Relative to CBO’s previous forecast
(September 2008), the revisions to the economic outlook account for a more than
$2 trillion decrease in revenues over the 10-year budget window. That is a
figure larger than the original ten-year legislative cost of the 2001 and 2003
tax cuts, and does not account for extending any of them, does not account for
continued relief from the Alternative Minimum Tax (AMT), and does not include
any new tax cuts that might be enacted in the next stimulus package.
“The CBO report is startling in highlighting how much conditions have
deteriorated and how dependent our fiscal outlook is on the strength or
weakness of our economy. It demonstrates that our current tax system is already
inadequate as a revenue source even before considering extended and new tax
cuts, especially in the face of short-term spending needs and long-term
entitlement pressures,” said Diane Lim Rogers, chief economist of The Concord
Coalition.
The current economic weakness has led to a decline in interest rates,
providing the federal government with an opportunity to finance new borrowing
at lower initial cost. Over time, however, the huge buildup in debt combined
with rising interest rates will bring interest payments on the national debt up
to around three-quarters of a trillion dollars ($772 billion in 2019), or 3.5
percent of GDP, under Concord’s plausible baseline.
The Concord Coalition’s baseline scenario uses alternative assumptions
contained in the CBO report. It reflects more plausible policies based on
recent trends. Our baseline assumes:
- Appropriations rise at the same
rate as economic growth (GDP), not inflation - Funding
for operations in Iraq and Afghanistan will slow gradually - All expiring tax provisions
are made permanent - Relief
from the Alternative Minimum Tax (AMT) is extended
While the Concord baseline, like CBO’s, does not include the cost of
additional economic stimulus, the above adjustments nevertheless add more than
$7 trillion to CBO’s baseline deficit of $3.135 trillion, for a $10.3 trillion
total deficit over 2010-2019.
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To read more about the Concord Coalition plausible baseline, visit: http://www.concordcoalition.org/learn/budget/concord-coalition-plausible-baseline
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The Concord Coalition is a nonpartisan, grassroots organization dedicated to
balanced federal budgets and generationally responsible fiscal policy. Former
U.S. Senators Warren Rudman (R-NH) and Bob Kerrey (D-NE) serve as Concord’s
co-chairs and former Secretary of Commerce Peter Peterson serves as president.
CONTACT:
Jonathan DeWald
(703) 894-6222
[email protected]
