WASHINGTON -- The Concord Coalition said today that new projections by the Congressional Budget Office (CBO) underscore the need for Washington to commit to long-term fiscal reforms while dealing with this year’s looming budget decisions.
Concord said the new numbers should also provide a sobering picture for this year’s candidates for federal office -- one that should temper election-year impulses to offer voters unrealistic promises.
“Once again, CBO’s projections show that if politicians don’t deviate from current policies, the country will continue down an unsustainable path that threatens to weaken the country, jeopardize our standard of living and leave our children and future generations with unmanageable levels of government debt,” said Robert L. Bixby, Concord’s executive director. “These numbers should frame this year’s political debates, and candidates from both parties would do well to spend some time studying their implications.”
“We need to put the country on a better fiscal path,” he added, “and candidates must clearly explain to voters -- with specifics, not empty rhetoric -- how they plan to do that. It will require setting priorities and making changes throughout the federal budget, and voters deserve to hear credible plans for doing this.”
CBO’s Update to the Budget and Economic Outlook estimates that the federal deficit for this fiscal year, which ends Sept. 30, will total $1.1 trillion. While that is down slightly from CBO’s March projection, it will be the fourth consecutive deficit of more than $1 trillion. In addition, federal debt held by the public would reach 73 percent of GDP, which CBO notes is the highest level since 1950 and is “about twice the share that it measured at the end of 2007, before the financial crisis and recession.”
The CBO prepared two sets of projections. The first -- the CBO’s “baseline projections” -- assumes that current laws will generally remain in effect. An alternative scenario, however, looks at what could happen if Congress changes certain laws to continue many current policies. This alternative scenario presents a far more troubling long-term picture.
Using the new CBO numbers, The Concord Coalition today updated its own “Plausible Baseline,” which applies what Concord considers to be realistic assumptions about future policy decisions. These projections are close to the CBO’s alternative scenario.
The budget office notes that the outlook for budget deficits, federal debt and the economy are “especially uncertain now because substantial changes to tax and spending policies are scheduled to take effect in January 2013.” These changes have often been called the “fiscal cliff” because if Congress allows all of them to take effect at once, it could cause substantial short-term economic damage, perhaps triggering a recession.
Under Concord’s Plausible Baseline, deficits between 2013 and 2022 would be much higher, averaging over 5 percent of GDP rather than 1 percent. Debt held by the public would grow to 93 percent of GDP by 2022, the highest level since shortly after World War II. As the budget office points out, that is not a sustainable level of federal debt.
“The differences between the CBO baseline and either CBO’s alternative scenario or Concord’s Plausible Baseline are striking, and they highlight the importance of the policy decisions that elected officials must confront before the end of the year,” Bixby said. “While it is important to support the economic recovery, Washington should also be laying the groundwork for the big fiscal reforms that are necessary to put the federal budget on a more responsible track over the long term. It is possible to do both, but this will require more thoughtful policy-making and greater bipartisanship than we have seen in Washington recently.”
Choices over tax policy, account for the bulk of the difference between the CBO baseline and the more plausible scenarios within the 10-year budget window. Extending the 2001 and 2003 tax cuts, along with fixes to the Alternative Minimum Tax (AMT) and debt service costs would add $5.2 trillion to deficits over 10 years.
In CBO’s baseline projections, mandatory spending will increase from 13.3 percent of GDP in 2013 to 14.4 percent in 2022. Nearly all of that increase would be due to the growth of just Social Security and Medicare -- representing the effect of the baby boom generation entering retirement. CBO projects that by 2022 over half of the entire federal budget will be spent on just Medicare, Medicaid, and Social Security.
For Medicare specifically, baseline growth is not attributable to health care inflation but instead to demographics.
The mandatory spending category of income security, now higher than normal because of the recession, would drop by over 60 percent over the budget window (from 2.1 percent of GDP to 1.3 percent).
Interest payments under the Concord Plausible Baseline would more than double, growing from 1.4 percent of GDP this year to 3.6 percent in 2022, and would cost over $5 trillion during the 10-year period.
If the caps included in the Budget Control Act are adhered to, CBO projects that discretionary spending would decrease from 8.3 percent of GDP in 2012 to 5.6 percent by 2022 -- the lowest level in the last 50 years.
For more about our plausible baseline, click here: http://www.concordcoalition.org/concord-coalition-plausible-baseline
The Concord Coalition is a nonpartisan, grassroots organization dedicated to fiscal responsibility. Former U.S. Senators Warren B. Rudman (R-NH) and Sam Nunn (D-GA) serve as Concord's co-chairs.