Concord Coalition Says CBO Numbers Show Why Lawmakers Should Look To The Future, Not In The Rear View Mirror

Press Release
Thursday, August 23, 2007

WASHINGTON -- With the Congressional Budget Office (CBO) projecting a third consecutive annual decline in the deficit, to $158 billion this year, The Concord Coalition today urged lawmakers not to take undue satisfaction from the short-term improvement but to focus instead on the nation's unsustainable long-term fiscal outlook.

"Today's CBO report is only good news if you are looking in the rear view mirror. Looking ahead, the same problems remain as large as ever and they are getting closer. Moreover, even the short-term outlook is not as promising as it appears on the surface. Strict adherence to the new Congressional pay-as-you-go rules and a great deal of discipline on appropriations bills will be necessary to make these projections a reality, " said Concord Coalition Executive Director Robert L. Bixby.

The Concord Coalition pointed out that deficit reduction reflected in CBO's new projections is the result of technical and economic re-estimates, things over which Congress has no control. Legislative actions, which Congress does control, have actually increased the deficit. For example, the 2007 deficit was improved by $48 billion in economic and technical changes, which more than offset the $29 billion of legislative changes that increased the deficit.

"Politicians in Washington and on the campaign trail have yet to confront the difficult trade-offs that must be made. Even if all their proposals comply with pay-as-you-go rules, which is a very big ‘if', that would not change the unsustainable course we are on," said Bixby.

The new CBO report shows a deceptively benign outlook over the next decade. This is not due to any fundamental change in the major cost drivers of the budget -- health care and retirement programs. On the contrary, between 2007 and 2017 the cost of Social Security, Medicare, and Medicaid will increase by 22 percent -- from 8.8 to 10.7 percent of GDP. As a result, these three programs, which now consume 42 percent of the budget, will consume 51 percent by 2017.

The reason for the baseline improvement is that it assumes policymakers will hold discretionary programs, including defense, to just 2.5 percent growth annually -- as opposed to a 5.9 percent annual average rate from 1995 through 2005 -- and that they will not enact new legislation to extend any expiring tax cuts or provide relief from the Alternative Minimum Tax (AMT). These assumptions are consistent with budget scoring rules, but inconsistent with legislative actions of recent years.

The Concord Coalition released its alternative baseline scenario using estimates contained in the CBO report. It 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 AMT is extended

These changes turn the official 10-year baseline deficit of $343 billion into a deficit of $5.2 trillion. Instead of a $62 billion surplus in 2012, there would be a deficit of $430 billion. By 2017, the baseline surplus of $109 billion becomes a deficit of $801 billion.

"Despite many twists and turns in the official baseline projections over the past few years, our alternative scenario has consistently shown a 10-year deficit of roughly $5 trillion. And as we point out on our Fiscal Wake-Up Tour, things get much worse beyond the 10-year window," said Bixby.

"The most important point to take from this report is that current fiscal policy remains unsustainable. Congress and the President should heed the clear warning signs in CBO's report -- specifically that while much of the recent revenue surge may prove to be temporary, spending pressures are certain to ratchet up substantially by the end of the decade as the baby boomers begin to retire," Bixby said.

Plausible Baseline:


CONTACT: Jonathan DeWald (703) 894-6222