WASHINGTON -- The Concord Coalition said today that President Bush's fiscal year 2005 budget, which aims to cut this year's projected $521 billion deficit to $237 by 2009, does not do enough to prevent deficits from exploding beyond the narrow 5-year window when the cash crunch of the baby boomers' retirement and heath care benefits begins to hit. As demonstrated by the Administration's own estimates in the Analytical Perspectives of the budget, extending its proposed policies does not result in a balanced budget over time but leads instead to permanent deficits. Moreover, a combination of optimistic assumptions and omitted costs - most notably for ongoing operations in Iraq and Afghanistan - strains the credibility of the Administration's claim that this budget will achieve even the modest goal of cutting the deficit in half over five years.
“The Administration's goal of cutting the deficit in half by 2009 is better than having no deficit reduction goal at all, but it ignores the full magnitude of the fiscal challenges we face. Even if the policies in this budget succeed in halving the deficit by 2009, deficits will shoot up again after that due to rising entitlement costs and the permanent extension of expiring tax cuts. This fiscally irresponsible combination produces an exploding cigar effect timed to go off just when the baby boomers begin to receive Social Security and Medicare at the end of the decade. Given the known demographic challenges, and the fiscal hole we're now in, a longer outlook and a more ambitious deficit reduction goal - preferably getting back to a balanced budget - would be far better,” said Concord Coalition Executive Director Robert L. Bixby.
Concord highlighted two policies with sharply higher cost in the second five years:
- The Administration projects that the new Medicare drug benefit will cost twice as much ($356 billion) in the second five years than it will in the first five years ($178 billion).
- The revenue loss from the Administration's tax cut proposals will be more than five times as much in the second five years ($947 billion) as in the five years covered in the budget ($175 billion).
- No funds have been set aside for a Social Security reform proposal, however, the Administration has expressed interest in making such a proposal. These costs would also come mostly beyond the next five years.
“The President's proposal to keep a tight lid on non-security spending is appropriate. However, the credibility of the claim that this budget will cut the deficit in half over five years must be weighed against the fact that no money is set aside for operations in Iraq and no revenue loss is assumed for alternative minimum tax relief beyond 2005 - two very unrealistic assumptions that if reversed would make achieving the administration's goal far more difficult. It is also very unlikely that Congress will essentially freeze all non-defense discretionary spending for a 5-year period as assumed in the budget. In short, we will likely see higher spending and lower revenues over the next five years than the Administration assumes in the budget,” Bixby said.
Concord highlighted these unrealistic assumptions in the current 5-year budget window:
- The budget assumes that after roughly $250 billion of supplemental spending for defense and the war on terrorism over the past four years, there will be no such supplemental spending over the next five years (Table S-2).
- The budget assumes that further relief from the growing alternative minimum tax will cease after 2005 and cost just $23 billion through 2009 (Analytical Perspectives, Table 16-3).
- The budget assumes that non-defense discretionary spending will remain frozen over the next five years although such spending has averaged more than 5 percent annual growth over the past 10 years. This assumption produces “savings” that may well prove to be illusory.
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.