WASHINGTON — The Concord
Coalition warned today that under reasonable assumptions about spending and tax
policies, budget deficits could easily exceed $6 trillion over the coming
decade. Given that a fiscal stimulus package would further expand the deficit,
Concord urged that any such legislation be carefully designed to have its
maximum effect in the very near future, minimize costs in later years, and
provide the greatest stimulus for the amount of spending or tax relief.
WASHINGTON — The Concord
Coalition warned today that under reasonable assumptions about spending and tax
policies, budget deficits could easily exceed $6 trillion over the coming
decade. Given that a fiscal stimulus package would further expand the deficit,
Concord urged that any such legislation be carefully designed to have its
maximum effect in the very near future, minimize costs in later years, and
provide the greatest stimulus for the amount of spending or tax relief.
"While much attention will be paid in the coming weeks to the contours of a
fiscal stimulus bill, no one should overlook the implication of today’s report
by the Congressional Budget Office that we are heading into the baby boomers’
retirement years in a position of fiscal weakness. Despite several years of
economic growth, the budget remains in deficit and now policymakers are
contemplating even higher deficits to avoid or mitigate a possible recession. It
is an inauspicious way to begin the year in which boomers begin to qualify for
Social Security retirement benefits," said Robert L. Bixby, executive director
of The Concord Coalition.
"At the moment, there appears to be a political consensus
around fiscal stimulus that is ‘targeted, temporary and timely.’ If those
criteria are scrupulously followed, a fiscal stimulus bill would not present
long-term concerns. Clearly, however, there is a risk that some will want to add
long-term agenda items that have little to do with short-term stimulus.
Fundamental changes in long-term tax or spending policy should not be undertaken
in the context of an effort to apply quick, short-term, fiscal stimulus. Most of
all, 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," Bixby said.
"The fiscal and economic consequences of the boomers’ retirement is clearly
reflected in the CBO numbers. Slowing labor force growth reduces CBO’s
projection of economic growth by the end of the decade and the boomers’
eligibility for Social Security and Medicare accelerates spending growth.
Regardless of the mix between spending and taxes, a fiscally responsible budget
plan must lay the foundation for dealing with the fiscal consequences of an
aging population and rising health care costs," Bixby said.
On the surface, the CBO report shows a dramatic 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 2008 and 2018 the
cost of Social Security, Medicare, and Medicaid will increase by 20 percent
— from 9 percent to 10.8 percent of the
economy (GDP). As a result, these three programs, which consumed 42 percent of
federal spending in 2007, will consume 53 percent by 2018.
The reason for the baseline improvement is that it assumes policymakers will
hold discretionary programs, including defense, to just 2.2 percent growth
annually beyond 2009 — in contrast to
the 6.7 percent annual average rate from 1997 through 2006
— and that they will not enact new
legislation to extend any expiring tax cuts or provide relief from the
Alternative Minimum Tax (AMT).
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
AMT is extended
These changes turn CBO’s 10-year baseline surplus of $274 billion into a
deficit of $6.47 trillion. Instead of an $87 billion surplus in 2012, there
would be a deficit of $485 billion. By 2018, the baseline surplus of $223
billion becomes a deficit of $954 billion.
###
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.
Plausible Baseline: http://www.concordcoalition.org/learn/budget/concord-coalition-plausible-baseline
CONTACT:
Jonathan DeWald
(703) 894-6222
jdewald@concordcoalition.org
