The Concord Coalition today urged lawmakers to take note of the first ever annual deficit projected to exceed $1 trillion and a post World War II high of 8.3 percent of GDP, and take steps to prevent deficits of this magnitude from becoming the norm. Concord warned that any attempt at economic stimulus must be coupled with steps to improve the nation’s longer term fiscal outlook. Concord also updated its “plausible baseline” reflecting reasonable adjustments to the new Congressional Budget Office outlook which now shows a 10-year deficit of $10.3 trillion.
"While much attention will be paid in the coming weeks to the size and contents of a fiscal stimulus plan, it will be important for policymakers to keep in mind the bigger picture presented by the Congressional Budget Office. The budget outlook over the coming years demonstrates the extent of fiscal weakness this country faces as it heads into the baby boomers’ retirement years. This weakness will make it even more difficult, yet more important to address our projected long-term fiscal imbalance,” said Robert L. Bixby, executive director of The Concord Coalition.
“The biggest factor missing from CBO’s recent baseline is the implication of an economic stimulus. While many economists acknowledge the merits of a stimulus for the next two fiscal years, what must be avoided is a costly bargaining process in which support for proposals with dubious bang for the buck and potential long-term costs is exchanged between Democrats and Republicans in the name of ‘getting something done.’ As the size of the expected package rises this risk will increase. In an atmosphere of crisis, attention can easily be diverted from the need for long-term fiscal discipline,” said Bixby.
The CBO report shows that the economic slowdown has led to a 19 percent increase in outlays for fiscal year 2009 from last fiscal year, and an almost 7 percent decrease in tax receipts. Relative to CBO’s previous forecast (September 2008), the revisions to the economic outlook account for a more than $2 trillion decrease in revenues over the 10-year budget window. That is a figure larger than the original ten-year legislative cost of the 2001 and 2003 tax cuts, and does not account for extending any of them, does not account for continued relief from the Alternative Minimum Tax (AMT), and does not include any new tax cuts that might be enacted in the next stimulus package.
“The CBO report is startling in highlighting how much conditions have deteriorated and how dependent our fiscal outlook is on the strength or weakness of our economy. It demonstrates that our current tax system is already inadequate as a revenue source even before considering extended and new tax cuts, especially in the face of short-term spending needs and long-term entitlement pressures,” said Diane Lim Rogers, chief economist of The Concord Coalition.
The current economic weakness has led to a decline in interest rates, providing the federal government with an opportunity to finance new borrowing at lower initial cost. Over time, however, the huge buildup in debt combined with rising interest rates will bring interest payments on the national debt up to around three-quarters of a trillion dollars ($772 billion in 2019), or 3.5 percent of GDP, under Concord’s plausible baseline.
The Concord Coalition's baseline scenario uses alternative assumptions contained in the CBO report. It reflects more plausible policies based on recent trends. Our baseline assumes:
- Appropriations rise at the same rate as economic growth (GDP), not inflation
- Funding for operations in Iraq and Afghanistan will slow gradually
- All expiring tax provisions are made permanent
- Relief from the Alternative Minimum Tax (AMT) is extended
While the Concord baseline, like CBO’s, does not include the cost of additional economic stimulus, the above adjustments nevertheless add more than $7 trillion to CBO's baseline deficit of $3.135 trillion, for a $10.3 trillion total deficit over 2010-2019.
To read more about the Concord Coalition plausible baseline, visit: http://www.concordcoalition.org/learn/budget/concord-coalition-plausible...
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.