“New Hampshire and Iowa aren't the only places where the expectations game is being played this week. Politicians in Washington are using the expectation of perpetual budget surpluses to promise everything from tax cuts and a Medicare prescription drug benefit to elimination of the public debt and a cost-free solution to Social Security's long-term cash shortfall,” said Concord Executive Director Robert Bixby.
“Politicians who play this expectations game are going out on a limb that is only as strong as the accuracy of 10-year budget projections ¾ a fiscally dangerous proposition. Given the volatility of budget projections, it is important not to confuse expectations with certainties. The CBO baseline is not a lottery payout. It is simply a good faith estimate of what is likely to happen under current economic and policy assumptions. Small deviations from these assumptions can markedly alter the total projection over a 10-year period,” Bixby said.
The Coalition reiterated its long-held position that the highest priority for any surpluses that do materialize is to help prepare the economy for the demographic tidal wave, which will begin to manifest itself by the end of the current 10-year budget window. “The Baby Boomers will begin to collect Social Security retirement benefits in 2008, and will qualify for Medicare in 2011. Neither program is fiscally sustainable in its current form. Until we have dealt with that fundamental problem, we should save every surplus dollar that comes our way,” Bixby said.
Concord advised that the new surplus projections should be assessed in light of the following questions:
· How much of the projected surplus comes from the legally off-budget Social Security surplus, which both parties have pledged to protect?
· How much of the on-budget (non-Social Security) surplus comes in the second five years of the projection period, when the uncertainty factor is much higher?
· How much of the on-budget surplus is attributable to the unlikely assumption that policy makers will adhere to the discretionary spending caps or freeze spending at this year's level?
· How much lower would the on-budget surplus be if it were assumed that emergency spending continues at its current level?
· How much lower would the on-budget surplus be if it were not assumed that the entire surplus is devoted to debt reduction?
· How much lower would the on-budget surplus be if the economy slows more than is assumed, or if interest rates go up by more than anticipated?
The Concord Coalition was founded in 1992 by former Senator Warren Rudman (R-N.H.), the late Paul Tsongas, former Democratic Senator from Massachusetts, and former Secretary of Commerce Peter Peterson. Former Senator Sam Nunn (D-Ga.) joined Rudman as co-chair of the organization in 1997. The Concord Coalition is a nonpartisan, grass roots organization dedicated to balanced federal budgets and generationally responsible fiscal policy.