WASHINGTON -- The Concord Coalition today welcomed the adoption of a Fiscal Year 2009 congressional budget resolution -- the first election-year passage in a deficit constrained environment since 1996 -- but warned that the plan assumes some very difficult choices on the revenue side to comply with pay-as-you-go (paygo) rules; assumes a paygo waiver for $340 billion of tax cut extensions, and, on the spending side, makes no provision for cost-cutting entitlement reform.

"Congressional passage of the budget resolution in a tough political and fiscal environment represents an important commitment to the budget process, and the idea that Congress needs to work within the constraints of an overall budget just like most American families. However, the recent trend--particularly in the Senate--of rejecting offsets and instead borrowing money with the national credit card to pay for items like Alternative Minimum Tax relief and the GI Bill expansion are ominous signs that the targets in this budget will be very hard to achieve. This is especially true when you consider that the choices in the five-year budget window will just become more difficult as war costs greatly exceed the small placeholder amount in the budget, AMT relief gets more expensive, the Baby Boomers begin to qualify for Social Security and Medicare, and the tax cuts come closer to expiring in 2010,” said Concord Coalition executive director Robert L. Bixby.

Under the budget resolution, revenues and outlays would balance at about 19 percent of GDP in 2012. That is lower than this year's projected level of outlays (20.6 percent of GDP) although the budget resolution does not require any major cost cutting initiatives. Revenues by 2012 would be higher than projected for this year (17.9 percent of GDP) although the budget resolution does not instruct the House Ways and Means or Senate Finance Committees to raise taxes. The revenue increase in the budget resolution is the result of current law "sunsets" that were included when these tax cuts were originally enacted.

Concord noted the following positive aspects of the budget resolution:

• It reaffirms the balanced budget goal.
• Despite the presumed waiver of paygo for certain tax cut extensions, the budget resolution does not exempt any tax cut legislation or mandatory spending expansion from the rule.
• Discretionary spending would eventually fall as a percentage of the economy, provided that Congress sticks with its targeted spending levels.

There are other aspects of the plan that Concord finds disappointing. Specifically:

• It does not budget for likely war costs. Like the President's budget, the budget resolution assumes just $70 billion for the cost of military operations in Iraq and Afghanistan in 2009 and nothing in 2010 through 2012.
• It does not provide a spending reconciliation bill to achieve savings in entitlement programs. The explosion in health care and retirement benefits that looms on the horizon is the single biggest threat to our nation's fiscal health. Including entitlement savings as a regular part of the annual budget process is an important step in addressing our long-term challenges. Even if paygo is strictly applied to expansions of mandatory programs, this would still leave spending growth under current law on an unsustainable path.
• It does not provide for discretionary spending caps beyond fiscal year 2009. In projecting a balanced budget in 2012, the budget resolution assumes much lower increases in non-defense discretionary spending after 2009, including increases lower than inflation from 2010-2012. Overall, the budget projects a decline in non-defense discretionary spending as a percent of GDP in every year after 2009. Without caps, the spending restraint assumed in the outyears of the budget resolution will be much harder to achieve.
• It does not assume revenue numbers that are consistent with strict application of paygo. Under current law, the tax cuts enacted in 2001 and 2003 are scheduled to expire on December 31, 2010. Moreover, current law does not assume further relief from the Alternative Minimum Tax. Thus, under paygo, the revenue that comes from these provisions would be assumed in the budget resolution. However, the budget resolution assumes a revenue number that is $340 billion below what would be collected if paygo applied. This number, in effect, assumes a waiver of paygo to provide for extending certain tax cuts.

Revenue and Outlays as a Percentage of GDP

In the FY09 Budget Conference Report

###

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
jdewald@concordcoalition.org