CBO Calls Long-Term Revenue, Spending Outlook Dire
Friday, June 26, 2009
The nation's long-term budget outlook has darkened considerably over the past six months, and President Obama's plan to extend an array of tax cuts and other policies adopted during the Bush administration has the potential to "create an explosive fiscal situation," congressional budget analysts reported yesterday.
In a new report, the Congressional Budget Office found that extending the Bush administration tax cuts, reining in the alternative minimum tax and canceling a scheduled reduction in payments to Medicare doctors would dramatically slash tax collections at a time when federal spending would be "sharply rising." The resulting budget gap would drive the nation's debt over 100 percent of gross domestic product by 2023, the report says, and past 200 percent of GDP by the late 2030s.
Obama has not proposed to extend all of the Bush tax cuts, which are scheduled to expire in December 2010. But he would keep all cuts benefiting the middle class -- a substantial portion of the total -- and has advocated additional borrowing to cover the costs of that and other policy changes analyzed by the CBO.
The CBO released its report on the same day that White House Office of Management and Budget Director Peter Orszag appeared on Capitol Hill to defend Obama's request to extend the Bush tax cuts and make other policy changes without making up the lost revenue. Orszag argued that no one has offered "credible proposals" for raising the necessary cash, and that simply allowing the tax cuts to expire or permitting a 21 percent cut in payments to doctors who care for Medicare patients to proceed next year would "unrealistically reduce costs or increase revenues."
Democratic lawmakers generally agree, and the budget resolution they adopted earlier this year assumes that many of the Bush tax cuts will be extended and future deficits will rise. Yesterday's CBO report highlights the cost of that trade-off.
The news is not particularly good even if the government were to collect the extra money, primarily because of the rapidly rising cost of Social Security and federal health programs for the elderly and the poor. According to the CBO, the annual gap between spending and revenue would briefly drop below 2 percent of GDP in the next decade before rising to 5.6 percent in 2035, 8.3 percent in 2050, and nearly 18 percent in 2080. But the outlook is much worse if the tax cuts and other policies are extended, the CBO found: Annual deficits would never drop below 4 percent of GDP; they would approach 15 percent by 2035 and surpass 42 percent by 2080.
Already heavily in debt, the nation would be forced to borrow ever more massive sums to keep the government afloat, the CBO warns, with the national debt nearly 200 percent of the overall economy by 2035.
"We're drowning in unprecedented levels of red ink, and there is no plan to fix the situation. Having spent over a decade worrying about budget deficits, I can quite honestly say that things have never looked as bad as they do now," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. "We need to be focused on slowing spending and finding better ways to raise revenue, not on cutting taxes and introducing new entitlement programs. We can either make these hard choices now, on our own terms, or we can make them in a panic on the heels of a full-blown fiscal crisis."