WASHINGTON -- The Concord Coalition warned today that new projections by the Congressional Budget Office (CBO) show a worsening budget outlook and the first ominous signs of fiscal strain brought on by the baby boomers' retirement.
On an apples-to-apples basis, today's projected 10-year deficit is $500 billion deeper than it was in CBO's September 2004 report. When plausible assumptions about the path of current tax and spending policies are used, the official baseline deficit of $855 billion balloons to a deficit of $5.8 trillion.
“No one should be lulled into thinking that this is a good news report. To the contrary, it is further confirmation that fiscal policy is on a dangerous path. Even with a strong economy, annual deficits are likely to hover between $400 and $500 billion for the next five years. After that, the combination of tax cut extensions and growing entitlement costs threatens an upward spiral of deficits and debt that cannot be sustained,” said Concord Coalition Executive Director Robert Bixby.
“While much attention will understandably be paid to the short-term outlook and to questions such as whether the deficit will set another record this year (it's possible), or whether the goal of cutting the deficit in half over five years can be achieved (it seems doubtful), the aspect of today's report that merits more attention is that the fiscal and economic impact of the baby boomers' retirement is clearly coming into view. The slowing of labor force growth reduces CBO's projection of economic growth by the end of the decade and the boomers' eligibility for retirement benefits accelerates spending growth,” Bixby said.
“To make matters worse, these factors hit at the same time that the extension of tax cuts enacted over the past few years will drain more than $1 trillion in revenues. It is this fiscally toxic combination that poses the biggest challenge for the future,” Bixby added.
Concord highlighted the following numbers from today's CBO report:
Assuming continued, but declining, spending for the global war on terrorism increases the 10-year deficit by $418 billion.
Assuming that discretionary spending keeps pace with economic growth (rather than inflation) increases the 10-year deficit by $1.4 trillion.
Assuming that all expiring tax cuts are extended increases the deficit by $1.6 trillion.
Assuming continuation of recent adjustments in the alternative minimum tax (AMT) increases the deficit by $642 billion.
Increased debt service charges for all of the above changes totals $810 billion.
Freezing appropriations (including defense, the war on terrorism and homeland security) would save $1.3 trillion (including lower debt service). However, if combined with the extension of tax cuts and continued AMT relief, the budget would still remain in deficit every year, totaling $2.2 trillion over the next decade.
Current Policy Trends Lead to Large
Sustained Deficits: Fiscal Years 2005-2015 (PDF format; Requires
Adobe Acrobat Reader)
The Concord Coalition is a nonpartisan, grass roots 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.