WASHINGTON -- The Concord Coalition today said that updated budget projections by the Congressional Budget Office (CBO) demonstrate a potential path for bringing spending and revenues closer together over the next 10 years. But the projections also underscore the need for the new congressional “super committee” to focus on the difficult decisions and bipartisan compromises necessary to put the country on a more responsible long-term course.
“These numbers show that if Congress simply went home, the budget would look a lot better over the next 10 years,” said Robert L. Bixby, Concord’s executive director. “Between the new budget caps, the expiring tax cuts and the triggered spending cuts now in place, the current-law baseline matches the debt stabilization levels of the numerous recent bipartisan fiscal policy proposals, at least in the near term.”
“The super committee would do very well to come up with a plan that follows the spending and revenue paths of the baseline,” he said. “They don't have to stick to a literal interpretation of current law. They just have to find policies that would achieve the same results. Bringing spending under 23 percent of GDP while keeping revenues under 21 percent of GDP and holding debt at 61 percent of GDP by 2021 would be a very substantial accomplishment.”
“Current policies must be changed to achieve long-term deficit reduction,” Bixby added. “The super committee has an opportunity to do that but it won’t succeed with the usual procrastination, partisan bickering and pretense that everyone can get everything they want.”
In today’s report, CBO noted that the country faces “profound budgetary and economic challenges.” Its baseline projection shows federal deficits dropping as a share of the economy in the coming years but still adding $3.5 trillion to the federal debt between 2012 and 2021. Beyond that, CBO says, further increases in federal debt relative to the nation’s output “almost surely lie ahead if certain policies remain in place.”
Based on CBO’s report, Concord has revised its “plausible baseline,” an alternative scenario that incorporates reasonable assumptions about changes that elected officials could make to current law. This presents a troubling picture, with deficits totaling $10.4 trillion over the 10-year budget window.
Among its assumptions are that the numerous tax cuts scheduled to expire in 2012 will be extended. The Concord baseline also assumes that the super committee will fail to reach agreement on further deficit reduction and that the $1.2 trillion in “triggered” across-the-board cuts will not be implemented in 2013 or beyond. Additionally, this baseline assumes that the payroll tax cut will be extended for one year along with an extension of unemployment benefits.
Under the plausible baseline, debt held by the public would grow to 90 percent of GDP by 2021. In just that year, interest costs would be 4 percent of GDP -- an amount greater than projected defense spending, non-defense discretionary spending, or Medicaid spending. Also in 2021, the deficit is projected to be $1.3 trillion -- larger than any other year in the budget window. Even as a percent of GDP, the 5.6 percent deficit in 2021 is deeper than in any year other than 2012, but without the deep recession to blame.
The CBO noted that economic weakness is likely to continue for the first part of the budget window, with unemployment remaining above 8 percent until 2014, and that the “long shadow” from the recession bears a share of the blame for current deficits. The CBO also suggests that while the spending and tax policies under current law diminish deficits in the short term, those same policies will also “impose substantial restraint” on the economy over the short term. However, this should not be used as an argument for abandoning efforts to stick with the CBO baseline for fiscal policy.
“Sticking with the revenue and spending paths projected in the CBO baseline does not mean that taking further action to support the economy should be off-limits,” said Joshua Gordon, Concord’s policy director. “In fact, it is easy to envision a package that combines short-term economic initiatives with longer-term deficit reduction. Policymakers just need to ensure that any additional tax cuts or spending beyond current law should be paid for within the budget window. If policymakers do that, they will go a long way toward establishing a fiscally sustainable path and could provide a way to get the economy back on track -- which just further supports the goal of long-term fiscal sustainability.”
A few statistics illustrate the dimensions of the challenges the super committee now faces:
- Under the CBO baseline, interest costs would double as a percent of the budget, from 6 percent to 12 percent.
- CBO projects that by 2021 half of the entire federal budget will be spent on just Medicare, Medicaid, and Social Security (up from 41 percent).
- At the same time, discretionary spending is projected to drop from 37 percent of the budget to 27 percent of the budget.
- Extending current tax policy would add nearly $6 trillion to deficits over the next 10 years, almost doubling CBO’s baseline projection.
The Concord Coalition is a nonpartisan, grassroots organization dedicated to fiscal responsibility. Former U.S. Senators Warren B. Rudman (R-NH) and Bob Kerrey (D-NE) serve as Concord's co-chairs.