Although recent projections from the Congressional Budget Office offer some encouraging news in some areas, they also show why comprehensive fiscal reforms are badly needed.
On the positive side, the CBO expects the annual deficit to drop below $1 trillion for the first time in four years. With an improving economy, federal revenues are expected to rise. In addition, a welcome slowdown in health care cost growth in recent years could continue.
Beyond this reassuring surface, however, there are many significant fiscal and economic concerns. The CBO warns that the government’s debt-to-GDP ratio remains “very high by historical standards.” Federal deficits and debt will be higher than projected if policymakers decide – as they have often done in the past -- to change certain policies that are currently scheduled to take effect.
Caps imposed on annual appropriations, which are assumed in current projections, will be quite difficult to achieve in practice. And the government’s standard 10-year projection period does not fully reflect the pressures that will be building on the budget toward the end of that time as the result of an aging population, rising health care costs and higher interest payments on the debt.
A new Concord Coalition issue brief analyzes these and other concerns raised by the CBO’s annual Budget and Economic Outlook as well as other recent studies. These include looming challenges for the U.S. economy, with slow growth forecast again for this year and unemployment expected to remain above 7.5 percent through 2014. And while the economy could do better in 2014, CBO suggests that economic growth could be more moderate several years down the road – another reflection of an aging population.
While policymakers can claim some credit for beginning to bring the nation’s finances under control, the most difficult decisions -- those involving health care, Social Security and tax reform -- remain to be made. That task must be the focus of the coming budget debate.