November 23, 2014

Deficits or Surpluses? Long-Term Assumptions Are Critical

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

Is the federal budget heading for unsustainable deficits or unsustainable surpluses?

It all depends on the long-term assumptions, as Concord Coalition Executive Director Robert L. Bixby explains in a new blog post that examines contrasting projections from the Government Accountability Office (GAO) and the President’s Office of Management and Budget (OMB).

Last week the GAO issued an update of its long-term fiscal outlook. As in the past, GAO found that an extension of current law (the “Baseline Extended” simulation) leads to rising and eventually unsustainable debt “driven by a fundamental imbalance between revenue and spending, which, on the spending side, is driven by the aging of the population and rising health care costs.”

OMB, however, released a new estimate last week showing that an extension of President Obama's budget policies would lead to growing surpluses that would eventually pay off the national debt.

OMB cautions that its projections “are not intended to be a prediction of future legislative action, nor are they intended to reflect explicit policy proposals for the years beyond 2023.” Still, the budget office says that the “base forecast shows that under 2014 Budget policies, in the long run the budget does not run deficits or increase the debt.”

All this raises an important question: How will policymakers know if they have achieved a sustainable fiscal plan?

“Any such assessment will depend on several important but highly uncertain assumptions about policy trends beyond the 10-year window used to score specific budget policies,” Bixby says. “The degree to which these assumptions can lead to remarkably divergent results over time is demonstrated by the GAO and OMB projections.”

Bixby says the GAO projection, on balance, is more useful in giving policymakers a “reasonable estimate” of where fiscal trends are headed.

“It all comes down to the underlying assumptions about health care costs, discretionary spending and revenue growth,” he writes. “On all three, OMB has a more optimistic view of the fiscal future.” In the past, he notes, OMB’s projections were closer to GAO’s.