It's President's Budget week! On Wednesday, President Obama will release his FY 2014 budget, illustrating another possible path in addition to the already-passed House and Senate budget resolutions.

The President's budget includes estimates by OMB and more detailed recommendations than those proposed by the budget committees in Congress, making it a useful reference in the fiscal debate. A few details of the budget have already been announced and based on reporting so far, President Obama's budget will incorporate many of the provisions in the White House's last fiscal cliff offer and some priorities from his State of the Union address. While we wait for the final budget, we have released a list of Ten Things to Look for in the President’s Budget, outlining ten principles of a responsible budget proposal.

Ideally, the President's budget will:

1. Put the debt on a clear downward path relative to the economy.
2. Include serious health care reforms.
   
3. Include comprehensive Social Security reform.
4. Include pro-growth tax reform.
5. Put other areas of the budget on the table for discussion.
6. Focus on the long term.
7. Not ignore expected costs or offset costs with unspecified savings.
8. Avoid budget gimmicks to inflate savings numbers.
9. Build upon, don’t water down, previous proposals.
10. Demonstrate willingness to compromise on a bipartisan basis.

President Obama's last budget stabilized debt at the end of the ten-year window, but still fell short of putting debt on a sustainable path in the long-term. Just as we did last year, we will break down the details of the budget on the Bottom Line later this week.

While the Senate and House have already passed their respective budget resolutions, this budget could be useful for finding ways to bridge priorities between Democrats and Republicans in Congress and lay the groundwork for a compromise. Hopefully, the President's budget will move the conversation forward.

Click here to read the full release.

CBO's latest Monthly Budget Review (MBR) for March means that we now have budget data for the first six months of FY 2013. The six-month deficit stands at $601 billion, down from $779 billion over the same period last year. For context, CBO previously projected that the deficit for FY 2013 would be $845 billion, compared to the actual FY 2012 deficit of $1.089 trillion.

The MBR is interesting this year because of many budgetary changes that have been made compared to last year. We have seen the expiration of a portion of the 2001/2003/2010 tax cuts, the expiration of the payroll tax cut, the implementation of some tax increases from the Affordable Care Act, the beginning of the sequester, the continued drawdown of war spending, and the enactment of other smaller spending changes. While most of these changes have only been in effect for the last three months, they are clearly already having an impact.

In nominal terms, compared to 2012, revenue is up by 12.4 percent and spending is actually down by 2.5 percent. So far, this is more fiscally favorable than what CBO predicted for the full fiscal year, having revenue up by 10.6 percent and spending up by 0.4 percent. It is unclear whether this trend will continue given the asymmetric nature of spending and revenue from month to month, but if it did, we would certainly see a lower 2013 deficit than CBO has projected.

^{Source: CBO}

Given the recent tax changes, it is not surprising that higher income and payroll taxes are driving the revenue growth. In addition, growing corporate profits have pushed up corporate income tax revenue. On the spending side, Social Security, Medicare, and Medicaid have grown steadily while other categories of spending have declined. Defense spending is down six percent mostly due to war spending being drawn down. Unemployment benefits are down by one quarter due to lower unemployment and longer-term unemployed people exhausting their benefits. Other mandatory and discretionary spending is down about nine percent due to the discretionary spending caps, improvements in the economy resulting in lower safety net spending, and some legislative changes. The sequester is unlikely to factor a great deal into these totals since only a small amount of cuts have actually hit money going out the door so far; rather, sequester cuts have affected the amount of new obligations that the federal government is able to incur (budget authority).

Over the past few years, the deficit has been steadily coming down as the economy has grown at a modest pace and lawmakers have enacted some deficit reduction. The six-month budget review of FY 2013 shows that trend has continued.

Last week we discussed the potential for bipartisan agreement on Medicare cost-sharing reforms, and today Politico reports on another area of entitlement reform where lawmakers may be able to reach middle ground: raising the Medicare age. The article points to a recent Urban Institute report which proposes raising the Medicare eligibility age from 65 to 67, aligning it with Social Security, while also allowing 65- and 66-year olds to buy into the Medicare program with subsidies for low- and middle-earners. This addresses some of the chief concerns of raising the age that it would leave many seniors uninsured, be particularly harmful for lower income seniors, and increase overall health costs.

The way this could work is that once the Medicare age is raised to 67, seniors age 65 and 66 would be offered an actuarially fair "buy-in" so they could continue to receive Medicare benefits. The upper half of the income earners would pay the full cost of their benefits, while those with incomes below 400 percent of the poverty line would receive income-related subsidies similar to those provided under the Affordable Care Act. Additionally, seniors below 133 percent of the poverty line -- who would generally qualify for Medicaid under the Affordable Care Act -- would instead receive a full Medicare premium subsidy.

Dr. Robert Berenson, a past vice-chairman of the Medicare Payment Advisory Committee (MedPAC) and one of the authors of the Urban proposal explains:

“We begin with the understanding that life expectancy has increased since Medicare was established in 1965, and it’s reasonable to raise the eligibility age, just as we have with Social Security…But it’s not reasonable to leave people unprotected in the private market. So we think it’s best to allow them to buy in to the best deal, Medicare. And that establishes continuity for them when they reach 67 and are eligible.”

On the one hand, a Medicare buy-in still addresses the issue of population aging, which is the largest driver of entitlement spending growth over the next few decades.  It would extend the life of the Medicare program and stave off untargeted, across-the-board cuts when the program is scheduled to become insolvent in 2024. Berenson notes that since its inception, Medicare eligibility has remained unchanged while life expectancy after age 65 has increased and health care costs have skyrocketed. In 1970, people turning 65 could expect to live another 15 years on average, spending 24 percent of their adulthood on Medicare; whereas people turning 65 today can expect to live another 20 years, spending 30 percent of adulthood on Medicare.

On the other hand, a buy-in provides a coverage option for those 65- and 66-year olds who may not have access to health insurance. Moreover, it offers subsidy assistance parallel to that under the Affordable Care Act (ACA) for low and middle income seniors to afford Medicare coverage for two years before aging into the program at 67. This provides a progressive subsidy structure, targeting resources to whose who need it most. Raising the Medicare age on its own was found to help the most disadvantaged. Adding a Medicare buy-in as the Urban proposal describes would lead to an even better distribution since Medicare costs are expected to be lower than exchange costs and since they call for some additional subsidies for those above 400 percent of the poverty line.

Another concern of raising the Medicare age has been the impact 65- and 66-year olds would have in the ACA exchanges with rules allowing insurers to charge older enrollees up to three times what they charge younger enrollees. More broadly, one study has suggested that raising the age would increase total health care spending by pushing people into higher cost private plans or uncompensated care.  However, creating a Medicare buy-in helps to mitigate these rate and cost-shifting issues to a significant degree. It also provides a mechanism for younger, and therefore typically healthier, seniors who currently help to bring down average Medicare costs enroll in Medicare while still raising the age and alleviating budgetary pressure.

Urban’s proposal offers just one approach to raising the Medicare age. Overall, the authors estimate their proposal would save $90 billion over ten years. While this is less than estimates for raising the Medicare age without a buy-in, there is room to dial the policy to be more or less generous depending on policy and savings goals. For example, lawmakers could lower the subsidy assistance, allow for a buy in option at age 62, or index the retirement age to longevity after raising it to 67. We shared estimates for some of these options in our Health Care and Revenue Savings Options report last December.

It's encouraging to see these types of ideas that could garner bipartisan support gain more interest as lawmakers get ready to return from recess and restart negotiations on a budget deal. It is certainly not the silver bullet for reforming Medicare, as health care cost growth will continue to be an issue, but it is a policy that warrants fair consideration. Let’s hope this is a sign they can come together on real entitlement reform that could help put our debt on a downward path as a share of the economy.

Over the last few weeks, we've seen several different budget proposals emerge from the Senate and the House, and President Obama is expected to release his FY 2014 budget next week. But while the budgets released offer some good ideas, none seemed to offer the bipartisan "grand bargain" approach that we often argue for here on The Bottom Line. As it turns out, polling suggests Americans may favor the compromise approach over all others.

Yesterday in Forbes, political pollster Doug Schoen comments on the findings of a new poll on the new Simpson-Bowles framework (different from the original Simpson-Bowles plan), which would replace sequestration with a smarter $2.4 trillion debt reduction plan to put the debt on a downward path as a percent of GDP to below 70 percent. The plan deals with all areas of the budget, reforms entitlement programs, protects the most vulnerable, calls for pro-growth tax reform, and addresses other spending. Schoen found that a 46-37 percent margin of those polled approved of the House Republican plan, with the same being true for the Senate Democratic plan by a 56-31 percent margin. However, 49 percent also believed that neither side had a realistic plan, implying that a compromise between the two approaches will be necessary. The Simpson-Bowles framework might just be that. Writes Schoen:

By an overwhelming margin—80 percent to 8—our respondents support the new Simpson-Bowles plan, which cuts wasteful spending, reforms our outdated tax code, and makes the necessary changes to entitlements such as Medicare and Social Security in order to protect them for future generations of Americans. This plan would reduce our debt by $2.4 trillion.

The plan stood up to scrutiny. When we gave specifics of the plan—including arguments against it that included cuts to Medicare and Social Security—support dropped, but remained between 56 percent and 65 percent favorability. Opposition to the plan never increased above 24 percent.

Compromise often sounds better in theory than it turns out in practice, but note that after pollsters gave a few details of the plan and an argument against it, a majority still supported the Simpson-Bowles approach. Clearly, Americans want to deal with our debt problem, and shared responsibility and a comprehensive approach is the best way to get there.

Smart deficit reduction should include reforms of entitlement programs and the tax code, which can be done in ways that protect the most vulnerable. In order for these goals to be realized, members from both sides of the political aisle will be required to meet somewhere in the middle. Schoen's polling data makes that very clear.

Today, Moment of Truth Project Director Ed Lorenzen published an op-ed responding to a recent piece from Michael Hiltzik of the Los Angeles Times which criticized the rationale of switching to an alternative measure of inflation, the chained Consumer Price Index (CPI).

Lorenzen first takes on a claim from Hiltzik that there are "no grounds" for asserting that the chained CPI is a more accurate measure of inflation than the current standard. However, there are many economists and institutions that have supported chained CPI over the current measure CPI-U for this reason:

In fact, experts across the ideological spectrum agree that the chained CPI is indeed more accurate. In his 2005 book "The Plot Against Social Security," Hiltzik listed various proposals for reforming Social Security, among them chained CPI. He wrote, "Many economists maintain that CPI consistently overstates inflation ... because it doesn't account for so-called substitution effects." Hiltzik doesn't explicitly endorse the proposal, but this is certainly a far cry from his objection that there are "no grounds" for the claim that chained CPI is a more accurate measure of inflation.

Advocates for using chained CPI to more accurately index government programs to inflation include Austan Goolsbee, who served as chairman of the president's Council of Economic Advisors under President Obama, and Michael Boskin, who held the same position under the President George H.W. Bush. Their view is shared by the overwhelming majority of economists. A report by the nonpartisan Congressional Budget Office stated that the chained CPI "provides an unbiased estimate of changes in the cost of living from one month to the next." Two of the most respected and prominent defenders of Social Security, the late Sen. Daniel Patrick Moynihan (D-N.Y.) and the late Robert Ball, the longest-serving Social Security commissioner, who founded the National Academy of Social Insurance, both supported the use of chained CPI to more accurately achieve the goal of providing inflation protection for seniors and disabled beneficiaries.

The Bureau of Labor Statistics has noted the shortcomings of the current inflation indexing and specifically designed the chained CPI to be a closer approximation to a cost-of-living index. The bureau has developed and refined the chained CPI over more than a decade.

Lorenzen also notes that that the post only focuses on applying the index to Social Security, while using the chained CPI would affect features of the tax code indexed to inflation and other spending programs as well. The chained-CPI does not have to be implemented in isolation either, many bipartisan proposals have included it along protections for vulnerable populations:

The government indexes benefit programs such as Social Security as well as provisions in the tax code to ensure they keep pace with inflation. Using a more accurate measure of inflation is not a benefit cut, but rather ensures that the benefits increase by the proper amount to achieve the desired policy goal. This change does not single out Social Security, as Hiltzik implies, but would apply to provisions throughout the federal budget. Social Security accounts for slightly more than one-third of the $390 billion in total savings over the next decade that would result from switching to chained CPI, with a similar amount of savings from revenue and the remainder from other government programs indexed to inflation along with interest savings.

To the extent that the overpayments under the current formula provide important help to certain low-income and elderly individuals, a switch to the chained CPI can and should be accompanied by targeted policy changes providing benefit enhancements designed to help the affected populations rather than providing higher-than-justified inflation adjustments for everyone. Every significant bipartisan deficit reduction effort, including the Simpson-Bowles plan, the Domenici-Rivlin plan and the negotiations between Obama and House Speaker John Boehner (R-Ohio) has proposed using chained CPI to index spending programs and the tax code, with a portion of the savings used to provide enhancements for low-income, elderly and other vulnerable populations.

Switching to the chained CPI makes sense for many reasons, which the Moment of Truth Project covers in full detail in its report, Measuring Up: The Case for the Chained CPI. Both putting debt on a sustainable path and making Social Security solvent will require tough choices, but chained CPI is one of the more straightforward.

Click here to read the full response.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

The recent NPR segment from Chana Joffe-Walt on the disability insurance program has certainly started a conversation. The Washington Post's Wonkblog in particular has been examining the story, and last week Dylan Matthews posted a story with five ways to reform the program. Matthews's list includes:

• Creating an employee-sponsored disability insurance program that would transition to SSDI: This proposal comes from MIT's David Autor and University of Maryland's Mark Duggan, under which employers would be required to pay premiums for their employees for disability insurance. Initially, employees would be covered by that disability insurance but would transition into Social Security Disability Insurance after 27 months.
• Imposing higher taxes on businesses that send a great proportion of workers to the DI program: Mary Daly of the San Francisco Federal Reserve and Richard Burkhauser of Cornell have suggested giving a tax break to businesses with low rates of enrollment in disability insurance among their employees, and higher taxes for businesses with high rates.
• Creating demonstration projects: Jeffrey Liebman of Harvard and Jack Smalligan of OMB have proposed creating demonstration projects to see what works including creating the employee-sponsored program, using wage subsidies to incentivize work, and allowing waivers for states so they can experiment with their own reforms.
• Easing the phase-out of benefits as earnings increase: Reducing the severity of the phase-out would decrease disincentives to work.
• Increasing the waiting period: Extending the waiting period from 5 months to 12 months would reduce the cost of benefits and potential fraud.

These are all ideas worth considering, but this list is no by no means exhaustive. Given that the Social Security Disability trust fund is due to be exhausted by 2016, all ideas for how to make the program solvent should be on the table.

^{Source: Social Security Administration}

Reforming disability insurance benefits and eligibility should be considered, as well as ways to raise additional revenues for the program. Other options not mentioned above (explained further here) include:

• Increase funding for continuing disability reviews
• Limit months of retroactive benefit payments (currently 12 months)
• Increase the 1.8 percent DI payroll tax
• Eliminate or increasing the taxable maximum on the 1.8 percent DI payroll tax
• Hold constant the ratio between DI benefits and EEA benefits as the NRA increases
• Instruct the Social Security Administration to tighten vocational grids
• Increase the ages in the vocational grids
• Close the record for the submission of evidence one week before hearings
• Require beneficiaries to regularly reapply to DI
• Disallow those above the EEA to apply for DI benefits (could be phased in beginning at an early age)
• Increase work requirements (currently 5 of the past 10 years) to apply for DI
• Restrict disability claimants to one application at a time
• Eliminate the "Reconsideration" level of disability appeal
• Time limit benefits based on likelihood of improvement
• Adjust DI payments to account for veterans disability benefits
• Reform the workers' compensation offset
• Disallow DI for the highest earners

Other temporary solutions to avoid a funding cliff include reallocating a portion of the payroll tax to DI or allowing the DI fund to borrow from the old age fund. However, none of these options would strengthen the combined OASDI trust fund, due to be exausted by 2033. CFRB Senior Policy Director Marc Goldwein laid out what a plan should accomplish if it must use these temporary financing mechanisms in an op-ed in The Hill:

Making the disability system solvent simply by taking money from the already-underfunded old-age system would represent a double policy failure by committing a disservice to both programs. Instead, policymakers should use the fast-approaching insolvency date in the same way they did when the trust funds ran low in 1983 – come together and fix both programs for this generation and the next.
 
Specifically, any plan which reallocates money from the old age program to the disability program should do the following:

• Enact reforms to improve Disability Insurance over the short-term...
  
• Take steps toward more structural reform...
• Fix Social Security: Make it sustainable solvent

The Social Security Disability Insurance program could benefit from these reforms, which help reduce fraud and abuse while better targeting benefits to those who need the support the most. In any case, the trust fund needs to be shored up to preserve this valuable program. There are many options out there, so a reasonable solution should be possible.

Former Chairman of the Council of Economic Advisors and Harvard Professor Greg Mankiw explains how a sustainable budget would affect debt levels in a piece in Saturday's New York Times.

Professor Mankiw was one of 160 economists that signed a letter to President Obama and Congressional leadership a few weeks ago, urging them to take up comprehensive debt reduction. In his NYT article, Mankiw explains the target that lawmakers should focus on: the debt-to-G.D.P. ratio.

So what does President Obama mean when he talks about fiscal sustainability? He doesn’t mean running a surplus and repaying the debts that have been incurred on his watch, as people who spend more than they earn would have to do. Nor does he mean balancing the budget, as Representative Ryan suggests. Rather, the president seems to mean keeping the debt-to-G.D.P. ratio stable at this new, higher level. That is certainly what the last budget he submitted proposed to do.

Achieving this goal is much easier than balancing the budget. Because G.D.P. grows, the government debt can continue to grow as well, just not too fast. Stabilizing the debt-to-G.D.P. ratio requires that future budget deficits be smaller than they have been over the last few years, but they can still be sizable.

Mankiw argues that just stabilizing the deficit does not go far enough, for many of the same reasons that we identified in our paper Our Debt Problems Are Far From Solved. As we show below, an additional $2.4 trillion in deficit reduction should be enough to put debt on a clear downward path.

Budget projections are not perfect, so debt should be put on a clear downward path in case anything should go wrong, in addition to allowing more fiscal flexibility and leading to greater economic growth:

Yet this goal, hard to reach as it might be in the current political environment, is still too modest. The problem is that budget projections are based on forecasts, and such forecasts exclude the extreme events that have historically driven up government debt.

Military and economic catastrophes are, by their nature, unpredictable. While we can’t plan on one, prudence requires that we take their possibility into account. In normal times, when we are lucky enough to enjoy peace and prosperity, the debt-to-G.D.P. ratio shouldn’t just be stable; it should be falling. That has generally been the case throughout our history, and it should become the case again as we look forward.

The bottom line is that President Obama is right that sustainability is a reasonable benchmark for evaluating long-run fiscal policy. But the standard he applies when evaluating it appears too easy. It will leave us too vulnerable when the next catastrophe strikes.

President Obama is expected to release his FY 2014 budget next week.  Hopefully, it will follow the trend of Congressional budget resolutions this year and put debt on a clear downward path. Lawmakers will still need to agree upon reforms to entitlement programs, the tax code, and other spending programs in order to reach that goal, but agreeing on the proper target is a good place to start.

In today's Politico, CRFB board member and former Secretary of Commerce Pete Peterson calls for a long-term solution to our national debt, which addresses the drivers of our debt, protects the vulnerable, and encourages economic growth.

Similar to what we’ve written previously, he makes the case that sustainable fiscal policy is the path to a favorable legacy for future generations. To get there will require both parties to work to compromise.

On the problem, he writes: 

[We will face] a slow-growth crisis, in an economy that is starved of badly needed investments. Over the next quarter-century, even if interest rates rise only to historically average levels, interest costs on public debt are projected to soar to about four times the total federal investment in R&D, education, and non-defense infrastructure combined. Those of us who believe more investment is needed in this technological and competitive global economy also have a responsibility to advocate for policies that ensure we have the resources to pay for it.

Peterson makes the argument that addressing three major areas are required to solve the problem: defense, taxes, and entitlements. Moreover, he says that both ends of the political spectrum will have to make uncomfortable compromises in these areas:

On taxes, Republicans must acknowledge the need for additional revenue to achieve a lasting bipartisan solution. Simple math makes any reform package without revenues not only draconian, but politically impossible. Relying solely on spending cuts to stabilize debt at sustainable levels would require cutting nearly one-third of the overall budget. Tax reform that raises revenue by reducing deductions would be economically beneficial and more feasible politically.

At the same time, President Obama should lead his fellow Democrats — and the entire nation — to solutions that tame the growing costs of Medicare, Medicaid, and Social Security. With rising health care costs and 78 million Baby Boomers retiring, these programs account for 100 percent of the projected long-term increases in federal non-interest spending.

On the solution, Peterson argues for an alternative to hasty, across-the-board cuts we see in the sequester.

First, we simply must preserve the safety net for the vulnerable. Reforms should start by asking the relatively well-off to contribute more and receive less. And those who advocate for the status quo must remember that doing nothing is the worst thing we can do for low-income families — without reform, we’re headed toward an economic and political crisis in which no program is safe.

Second, retirees need time to plan for policy changes. Our leaders should agree now on reforms to Medicare and Social Security, so that people have time to prepare. Of course, entitlement reform that exempts those nearing retirement requires that we reach an agreement now—we can’t afford to delay both the decision and the implementation.

By making smart, phased-in reforms and investments, we can help boost the recovery rather than hinder it:

The suggestion that Washington should focus on economic recovery today and long-term debt reduction later presents a false choice. Our leaders can walk and chew gum at the same time. And entitlement reform with delayed implementation by definition won’t harm the recovery. To the contrary, a comprehensive plan that stabilizes long-term debt would generate much-needed confidence in all sectors — business, consumer, financial markets — that would in turn stimulate the short-term economy.

Ultimately, I believe the most persuasive argument for addressing long-term debt is moral. If we do nothing, we will leave more than $50 trillion of unfunded promises on the backs of our children and grandchildren over the next 50 years.

To read the full op-ed, click here.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

The Economic Policy Institute's Ethan Pollack has a blog post questioning the accuracy and ultimate usefulness of long-term (75-year) budget projection, especially CBO's Alternative Fiscal Scenario (AFS). Pollack's post builds off an analysis from Michael Linden of the Center of American Progress, who shows that much of the deterioration in the AFS relative to CBO's current law baseline is due to assumptions about future fiscal irresponsibility from lawmakers which may be unfounded. This leads both Pollack and Linden to argue that the AFS projection may mislead lawmakers to think that there is a much bigger problem than there actually is. But while AFS may be a worst case scenario, more reasonable projections still show an unsustainable debt path that demands our attention.

Pollack points out that there is inherent uncertainty with any sort of projection, uncertainty which is only compounded when doing a projection with such a long timeframe.

Imagine trying to figure out how the 138^th Congress that will govern in 2063—likely with many members that aren’t even born yet—will feel about marginal tax rates, or the cost of an MRI. Will we still even use MRIs? On the subject of healthcare, consider this: a device was recently developed that, once implanted into a patient’s body, can provide ongoing monitoring of various blood chemicals and report the findings to a smartphone. This could have a hugely transformative impact on our currently reactive health care system. But would it reduce or increase the share of the economy we spend on health care? Would health costs fall because visits to the doctor would be less frequent and diseases and emergencies would be detected early? Or would costs rise because every patient would start demanding what may be an expensive implant that ends up telling doctors nothing they don’t already know about 99 percent of their patients?

Linden has similar concerns about the assumptions of lawmakers' future actions:

It’s not unreasonable to assume that Congress will cut taxes and increase spending in the future, but that is not the same thing as projections based on underlying demographic or economic trends. Guesses about what policymakers will do a decade into the future are just that—guesses. It is just as reasonable to assume that in 2023—when the debt is already 80 percent of GDP—Congress won’t enact massive new tax cuts or spending increases without paying for them.

But it's worth noting that this is only one of CBO's two scenarios, the other being current law. CBO's Alternative Fiscal Scenario is their pessimistic projection of what could happen based on historical experience or trends, while current law is a more optimistic projection. Together, these baselines illustrate a range of possibilities, much like a confidence interval, but do not necessarily represent the most likely case. CRFB and many other think tanks including the BPC, CBPP, and Concord Coalition, have released more realistic baselines that include policies not in current law and also relax some of more unlikely assumptions in the AFS. CRFB has estimated what the long-term baseline would look like incorporating the legislative and technical adjustments since the last CBO Long-Term Outlook for the two CBO baselines and our own, seen below. All show an upward path for debt, as does Linden's own analysis.

^{Source: CRFB, CBO}

While the AFS should be taken with a grain of salt, it doesn't mean more realistic projections should not concern lawmakers just because it is difficult to make predictions over a 75-year timeframe. While there is great uncertainty in many factors, there are also things we can predict with reasonable certainty. One area is demographics, which has a large effect on the budget going forward, accounting for a majority of the growth in entitlement spending in the next two decades. While health care cost growth has been subdued recently, we can reasonably predict some reversion to the trend we've seen in the past four decades as the economy recovers, with costs continuing to grow faster than GDP. We can also reasonably predict how much revenue will be raised if we continue to have the same tax code.

It's worth noting that all of the baselines may be too optimistic in one sense, given that their economic projections do not factor in recessions. We also showed earlier this week how sensitive budget projections are to interest rates, which could be higher than under CBO's projection if debt is allowed to rise unchecked. Given the pressures that will make it much more difficult to slow the growth of debt, it is better to get a running start by making changes to take effect later in the decade when the economy is better suited to handle them. Even if budget projections turn out to be too pessimistic, the political system has shown to be much better at giving away surpluses than it has at quickly getting to balance. Again, this does not mean having changes take effect now but planning to have them do so in the future. It is better to be cautious and agree upon a plan now rather than waiting for deteriorating projections.

Lawmakers have made notable progress since the last long-term outlook. The savings enacted under ATRA produced a debt path that is a little less worrisome than what was projected in last June (with the exception of current law). But that shouldn't lull anyone into a false sense of security. We still need to do more - lawmakers should look to find an additional $2.4 trillion in savings to put debt on a downward path.

So we agree with Pollack and Linden that CBO's projections are subject to a huge degree of uncertainty, and that AFS might not be the most likely scenario of what debt will be on our current path. But more modest projections of where we are heading given demographic pressures and continued excess health care cost growth still show debt on an upwards path. We should be prepared to deal with those pressures rather than having to scramble and enact changes quickly.