Concord Coalition Cautions that Deficit Decline is not Supported by Long-Term Trends

Press Release
Wednesday, July 11, 2007

WASHINGTON -- The Concord Coalition today welcomed the Bush Administration's projection of a third consecutive annual decline in the budget deficit, but cautioned that this does not represent a fundamentally improved fiscal outlook. The modestly improved short-term outlook is not the result of policy actions or economic trends that are likely to keep the deficit on a downward slope.

"It is always good to see the deficit coming down, but there is little about the current situation to inspire confidence that the trend will continue. The main engine of deficit reduction has been unexpected revenue growth and there are clear signs that this engine is slowing down to more traditional levels. Meanwhile, spending restraint has been limited to non-defense domestic appropriations, which account for less than 20 percent of the budget. Nothing has been done to slow the growth of the major entitlement programs or defense spending. What this portends is a rising deficit not a smooth path back to a balanced budget," said Concord Coalition Executive Director Robert L. Bixby.

"There is a real danger that some will latch onto today's report as evidence that all is well on the fiscal front. For example, the Administration has argued that its tax cut policies have boosted the economy and led to higher revenues. Yet economic growth has not been unusually strong, averaging 2.9 percent inflation adjusted annual growth over the past five and a half years. This compares with an average growth rate of 3.1 percent over the past 40 years. Clearly, tax cuts have not proven to be a magic elixir for economic growth," Bixby said.

"While many factors contribute to the growth in revenues, the evidence suggests that the unexpected increases in recent years have been as much a product of technical factors such as changes in income distribution as from stronger economic growth. In any event, revenue growth has slowed substantially during the year, meaning that the unexpected windfalls of 2005 and 2006 are likely a thing of the past," said Joshua Gordon, Concord Coalition Senior Policy Analyst.

"On the spending front, it is important to direct restraint at the areas of the budget that pose the biggest challenge -- Social Security, Medicare and Medicaid. As a matter of context, the $23 billion difference that the President and the Congressional leadership will spend much of the next few months fighting over is less than half of the amount Congress will spend automatically next year, with no debate whatsoever, on just the Medicare prescription drug benefit," said Gordon.


CONTACT: Tristan Cohen [email protected] (703) 894-6222