CBO tells Obama deficit panel that forecast remains bleak

By Lori Montgomery
Washington Post Staff Writer
Thursday, July 1, 2010

President Obama's overhaul of the health-care system has done little to improve the nation's fiscal outlook, and his pledge to extend an array of tax cuts for the middle class would only make things worse, congressional budget analysts said Wednesday.

In its latest long-term forecast, the nonpartisan Congressional Budget Office predicted that the national debt, which has surged to nearly 60 percent of annual economic output in the wake of the recession, would continue rising in the coming decades despite cost-containment measures in the health overhaul Obama signed this spring.

"Growth in spending on health-care programs remains the central fiscal challenge," CBO Director Douglas W. Elmendorf said in a presentation to Obama's bipartisan deficit commission. "In CBO's judgment, the health-care legislation enacted earlier this year made a dent in the problem, but did not substantially diminish that challenge."

Although more starkly stated, CBO's position has not changed since the health-care legislation was approved. The new forecast simply incorporates CBO's cost estimates from that time, which predicted that the plan to expand coverage, raise taxes and cut Medicare spending would reduce deficits by about $140 billion over the next decade and by more than $1 trillion in the decade after.

"Slowing the rate of health care cost growth is the single most important action we can take to reduce our long-term fiscal shortfall," White House budget director Peter Orszag said in a statement. "The report confirms that the enactment and successful implementation of the Affordable Care Act is a key step toward a healthier fiscal future."

But Republicans seized on the report, calling it more evidence that the health-care act will fail to significantly restrain government health costs, one of the legislation's key missions. "This is not a game-changer," said Rep. Jeb Hensarling (R-Tex.).

Although the health-care law, in the CBO's view, didn't help much, the fiscal picture would dim dramatically if Congress moved to short-circuit its cost-control measures while enacting tax policies Obama has proposed to benefit the middle class. Those policies include a permanent reduction in the alternative minimum tax and a plan to extend tax cuts enacted in the Bush administration for families making less than $250,000 a year. The Bush cuts are set to expire this year.

Under that scenario, which assumes overall taxation levels would remain stable relative to the size of the economy, the CBO said the national debt would soar to 87 percent of gross domestic product by 2020, exceed its historical peak of 109 percent by 2025 and hit 185 percent by 2035 -- "uncharted territory," Elmendorf said, that could include higher interest rates, more foreign borrowing, less private investment and lower income growth, if not a full-blown fiscal crisis.

Elmendorf said the gloomy long-term picture is not an argument for rejecting additional spending now to bolster the economic recovery. Indeed, he said, "enacting cuts in spending or increases in taxes now would probably slow the recovery."

However, Elmendorf said developing a credible and certain deficit-reduction plan to take effect after the economy has recovered could provide a significant boost to public confidence by reducing "uncertainty" about what is bound to be a painful future path.

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