September 18, 2014

CONCORD COALITION OPPOSES TAX CUT BILL; POINTS OUT THE PERILS OF BASELINE BINGO

WASHINGTON -- The Concord Coalition today urged the House of Representatives to reject the The Financial Freedom Act of 1999 (H.R. 2488) because it relies too heavily on projections of huge future budget surpluses that are unlikely to materialize, and because it devotes almost the entire non-Social Security surplus to tax cuts, leaving no room for other legitimate uses such as reducing the $5.6 trillion national debt.

 

         “To their credit, both parties now generally agree that the Social Security surplus should not be used to finance other operations of government.  Now the question is how to best allocate the non-Social Security surplus.  Caution should be the word of the day.  We must be careful not to squander this opportunity to build a better economy for future generations.  The moral of the story is, don't count your chickens before they hatch, or don't commit your surpluses before they materialize,” said Policy Director Robert Bixby.

 

         The Concord Coalition released a chart illustrating that baseline surplus projections can vary widely depending on the policy assumptions regarding discretionary and emergency spending.  Entitled “The On-Budget Surplus: CBO Baselines Under Alternative Policy Assumptions,” the chart shows that the ten-year, non-Social Security surplus varies from $996 billion to $46 billion depending on the assumptions that are used.

 

         “A baseline cannot be separated from its policy assumptions.  It's true that if all the policy assumptions behind the projections turn out to be correct, we'll hit baseline bingo.  But if some of the assumptions turn out to be even slightly optimistic, the surplus projections drop considerably.  This argues for great caution in making permanent commitments based on projections.  We shouldn't base our long-term fiscal policy on the chance that we'll win baseline bingo,” Bixby said.

 

         The existence of a ten-year $1 trillion surplus, over and above Social Security, depends on a series of policy decisions that few in Washington believe will be made and many are actively opposing.  For example, the baseline assumes that the discretionary spending caps will hold, and yet appropriators of both parties insist that they won't be able to pass their bills if the caps are not raised.  Moreover, the baseline assumes there will be no emergency spending, yet according to CBO, emergency appropriations have averaged $8.9 billion a year since 1991, excluding the Gulf War.  This raises questions -- if the policies on which the surplus projections are based are unlikely to come to pass, how likely is it that the surpluses will come about or that they will be as large as projected?

 

         “The bottom line is that unrealistic policy assumptions lead to improbable baselines that can be used to justify policies, whether they be tax cuts or permanent spending increases, that are unaffordable over the long term,” Bixby said.