By the Concord Coalition, Special for USDR
The Concord Coalition said today that new long-term projections from the Congressional Budget Office (CBO) underscore the need for Washington to move beyond today’s overly partisan environment to pursue broad fiscal reforms.
“In looking out beyond the usual 10-year frame for analysis of budget trends, the CBO’s annual report on the long-term outlook is an invaluable reminder that elected officials in both parties must spend less time cooking up budget gimmicks and more time working together to figure out how to put the nation on a more responsible and sustainable path,” says Robert L. Bixby, Concord’s executive director.
“There are no gimmicks to get around the demographics,” he points out.
“The current debate over highway funding offers a particularly good example,” Bixby added. “Instead of stabilizing funding for infrastructure projects that both parties agree can increase the nation’s long-term economic potential, Congress is using an accounting gimmick that will increase deficits in the long run to simply postpone by 10 months a more serious discussion of highway funding needs.”
Meanwhile, the demographic trends that increase fiscal unsustainability march on. Over the next 25 years, CBO says, we can expect an aging population to drive 55 percent of the growth in federal health care programs and Social Security. The number of Medicare beneficiaries will double over the same period, while declining labor force growth could result in lower economic growth.
“As in the past, the CBO’s long-term outlook is an excellent antidote to complacency,” Bixby said. “And it is particularly welcome this year, when economic growth and short-term drops in the deficit have led many in Washington to neglect such fundamental challenges as meeting the needs of an aging population, coping with rising health care costs and repairing the unfair, inefficient tax system.”
The budget office notes that if current laws were to remain generally unchanged, the federal debt held by the public — already high by historical standards at roughly equal to 74 percent of GDP — would decline slightly over the next few years. After that, growing deficits would push the debt higher and higher. CBO estimates that 25 years from now the debt would exceed 100 percent of GDP, and would continue to rise after that.
The CBO projects that federal spending for Social Security and the major federal health care programs will rise to 14 percent of GDP by 2039, twice the past average. Interest costs would rise rapidly as well.
Everything else in the federal budget, however, would decline to only 7 percent of GDP in 25 years, far below the 11 percent average of recent decades. In fact, it would represent a smaller share of GDP than at any time since the late 1930s.
“The CBO’s projections show how tightly much of the federal government would be squeezed under current law,” Bixby said. “It raises serious questions about how realistic these plans are.”
As the budget office stresses, there is considerable uncertainty in such long-term projections. One problem is that Congress often has trouble following through on deficit-reduction plans once they start to actually have a substantial effect. So there is a considerable risk that the fiscal picture could be even darker than today’s current-law projections indicate.
The CBO also offers several illustrative scenarios that underscore the benefits of taking corrective action sooner rather than later, with the potential to substantially lower projected debt levels in the coming decades.
But to put the federal budget on a sustainable long-term path, CBO says, lawmakers would have to make “significant changes to tax and spending policies: reducing spending for large benefit programs below the projected levels, letting revenues rise more than they would under current law, or adopting some combination of those approaches.”