Washington – The Concord Coalition said today that the new Budget and Economic Outlook for Fiscal Years 2022-2032 released by the Congressional Budget Office (CBO) is evidence that the days of easy deficit reduction from fading COVID relief funding are over. As anticipated, CBO’s baseline shows a brief decline in deficits from the COVID-related spikes of 2020 and 2021 – followed by a familiar pattern of escalating deficits that reflect a long-standing structural gap between spending promises and projected revenues under current law. Now, hard choices must be made in order to put the budget on a path of fiscal sustainability.
“As the heat of the COVID economic meltdown fades, it is clear that the budget remains on an unsustainable path. This should come as no surprise. The budget was on an unsustainable path before the pandemic hit. What’s more alarming is that neither Democrats nor Republicans are seeking a mandate from the voters in 2022 to do anything about it,” said Concord Coalition Executive Director Robert L. Bixby. “Worse yet, due to baseline scoring conventions, today’s CBO projections represent an optimistic scenario.”
Bixby pointed out that the CBO baseline projections:
Assume that several temporary tax cuts enacted in 2017 will expire on schedule after 2025, an unlikely event that artificially boosts revenue projections and reduces future deficits by nearly $3 trillion;
Assume no further COVID aid for testing, vaccines, and therapeutics despite a recent rise in hospitalizations and the threat of new variants;
Assume no further aid to Ukraine’s fight against Russian aggression, despite the government having already committed nearly $60 billion this year to a cause that national security officials warn will be a prolonged conflict; and
Assume the Federal Reserve Board will be able to engineer a difficult and historically rare “soft landing,” by tamping down spiraling inflation without causing a recession.
The sleeping giant buried in the baseline is the rapid growth in net interest costs. The federal government has benefited from two decades of low interest rates but we’ve amassed such a large amount of debt that future costs are projected to soar. By 2025, debt service will exceed the federal share of Medicaid and by 2029 will exceed the size of the entire defense budget.
“President Biden has touted the projected sharp decline in the FY 2022 deficit compared to the deficits of 2020 and 2021, but this result is largely due to expiring COVID relief and an expected economic recovery. The time when we can count on such effortless deficit reduction is ending. In CBO’s new baseline projections, deficits begin rising again in 2024 under current law. It will take hard legislative policy choices, considerable bipartisan negotiation and probably some good luck to ensure further improvement in the budget outlook,” Bixby said.
“Ignoring our long-term structural fiscal and economic problems will not make them go away. The longer we wait to act, the more difficult the solutions will be — and the greater the risks will be to the nation’s future. As the fiscal debate turns to the post-pandemic economy, policymakers should craft an agenda that is both pro-growth and fiscally responsible. An agenda premised on ever-low interest rates and ever-rising debt is not a solid foundation for a sustainable budget or a growing economy. It is a fantasy,” Bixby said.