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CBO's Long Term Budget Outlook

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While CBO's debt projections have improved under the Extended-Baseline scenario, debt has worsened under the Alternative Fiscal Scenario. But under either path, debt reaches unsustainable levels. CRFB argues that policymakers should act immediately to put in place a credible plan to stabilize the debt gradually as the economy recovers.

CRFB Reacts to CBO's Long Term Outlook

CHAIRMAN
Bill Frenzel
Tim Penny
Charlie Stenholm

 
PRESIDENT
Maya MacGuineas
­­­
 
DIRECTORS
Barry Anderson
Roy Ash
Charles Bowsher
Steve Coll
Dan Crippen
Vic Fazio
Willis Gradison
William Gray, III
William Hoagland
Douglas Holtz-Eakin
Jim Jones
Lou Kerr
Jim Kolbe
James Lynn
James McIntrye, Jr.
David Minge
Jim Nussle
Marne Obernauer, Jr.
June O'Neill
Paul O'Neill
Rudolph Penner
Peter Peterson
Robert Reischauer
Alice Rivlin
Charles Robb
Martin Sabo
Gene Steuerle
David Stockman
Laura Tyson
Paul Volcker
Carol Cox Wait
David M. Walker
Joseph Wright, Jr.
 

SENIOR ADVISORS
Elmer Staats
Robert Strauss


CRFB Reacts to CBO's Long Term Outlook
June 30, 2010



Today, the Congressional Budget Office (CBO) released its Long Term Budget Outlook, which paints an alarming and dismal picture of the country’s fiscal future.

Under current law, public debt will reach 79 percent of the economy by 2035 and about 107 percent by 2080. Under CBO’s Alternative Fiscal Scenario, which is seen to be a more likely policy path and includes the extension of many expiring policies as well as modifications to certain savings assumptions that may not materialize, debt will reach 87 percent by 2020, 185 percent by 2035, and an astronomical 854 percent by 2080. Talk about unsustainable.

CBO also reports that even with health care reform, population aging and excess cost growth remain the largest problem areas in the budget and will push deficits and debt to untenable levels.

If current policies are continued, federal spending is projected to increase from 24.3 percent of GDP today to over 35 percent by 2035, whereas revenue levels will be far from sufficient to sustain the projected growth in spending—increasing from 14.9 percent today to 19.3 percent in 2035.

“Aging, health care costs, and an outdated, insufficient revenue system are set to bury the country in debt,” said CRFB president Maya MacGuineas. “Are the findings in this report really the messages we want to be sending our creditors?”

“Policymakers must begin working on real solutions to our long-term problems now,” said MacGuineas. “With debt levels expected to soar, policymakers must embrace meaningful reforms to help us regain control over future deficits, reduce the risks of a fiscal crisis, and keep the economic recovery on track. If this year’s Long Term report isn’t a call to action, I don’t know what is.”

 


Click here for a pdf version of this release.

For press inquiries, please contact Kate Brown at (202) 596-3365 or brown@newamerica.net.

 

Op-Ed: Can We Afford $100 Billion Jobs Bill?

CNN | June 4, 2010

 

Last Friday, the House passed and sent to the Senate a jobs bill that was scaled down in an effort to control the cost.

The American Jobs and Closing Tax Loopholes Act, which was originally projected to cost around $190 billion, would still cost more than $100 billion and add roughly $50 billion to the deficit. This does not include the tens of billions that will be part of a supplemental spending measure, which will deficit-finance war spending and other "emergency" measures.

That's a lot of borrowing to add to a debt that already exceeds $8 trillion. It raises a host of questions. Does the economy need measures to help with job creation? Are these the best measures? Should they be paid for or simply added to the deficit?

Obviously, the unemployment rate is still far too high. Although there are pockets of growing employment and other encouraging economic signs, job growth will likely lag during the recovery. As the unemployment rate hovers close to 10 percent and families struggle to deal with the potentially devastating effects of sustained joblessness, efforts to ease the pain are indeed warranted.

The problem is, no clear-cut way exists to use federal dollars to promote sustainable job growth. The House bill includes an extension of unemployment benefits, a bump-up in slated federally funded physician payments, and an extension of some expiring tax breaks. Would this create a host of shiny new jobs? Unlikely.

Unemployment benefits are in order because they help struggling families, although criticisms that they may prolong unemployment by reducing incentives to look for work are not unfounded.

The inclusion of the "doc fix" -- or the patch to the slated reductions in physician reimbursement rates -- is certainly not a credible policy to create jobs, but rather an example of muddying up important legislation with unrelated items. Further, the doc fix, a long-standing problem, should have been addressed as part of health care reform. So although a jobs bill makes sense, it is hard to argue that this one holds much hope for doing much to improve the employment situation.

Nonetheless, this bill is the one we've got. If that is the starting point, then should it be paid for? There are those who argue that adding the cost of the bill to the deficit, rather than paying for it, would create more stimulus, which is what the economy needs right now.

Frankly, many of these pro-stimulus arguments are made more for political reasons than for economic ones. There are plenty of members of Congress running for re-election who want to offer more benefits and tax cuts, but few who want to pay for them. So the stimulus label comes in quite handy.

So far, to control costs, certain measures have been dropped from the bill -- such as extending Medicaid benefits to the states and providing COBRA subsidies -- and the cost has been lowered by shortening the period over which the doc fix would apply. But Congress may well choose to make many of these changes later, so this is more kicking the can down the road instead of making the necessary hard choices.

Instead, those who support the bill should be willing to pay for it. As moderate Democratic Rep. Stephanie Herseth Sandlin of South Dakota said, "We need to pay for our priorities, and that principle doesn't just apply only when it's easy -- it's especially important when the decisions get tough."

It would be fine to borrow to provide more stimulus now as long as the cost of the bill was paid for over a longer period of time -- say, five years. Demonstrating that we are serious about fiscal responsibility as well as economic stimulus would be the best way to boost the economy and reassure credit markets that the U.S. remains a good place to lend for the long term. If instead we continue to pile up too much debt, it could cause our creditors to balk, pushing up interest rates and choking off the very recovery we are trying to foster.

There are an infinite number of ways to offset the costs of the measures in the bill. For instance, unemployment benefits could be financed by instituting a short-term freeze on federal pay -- something that would be reasonably fair given that as wages have fallen in most of the economy, federal workers have continued to see their salaries rise faster than inflation.

Similarly, we could offset the cost of the doc fix by strengthening the new Medicare commission, which was part of health care reform, by allowing it to make recommendations that affect more parts of the health care system, including hospital payments, participant costs and government health subsidies, and directing it to find additional savings.

As the bill moves to the Senate, some are already trying to water down the existing offsets such as the increase on the taxation of carried interest, which eliminates a loophole that allowed hedge fund and private equity firm partners to pay lower income tax rates than ordinary wage earners. This is exactly the opposite of what is needed.

From here on out, the name of the game has to be paying for added spending in one area by spending cuts in other areas. We cannot afford to add more to the national credit card -- an irresponsible approach to budgeting that will weaken the economy over time and do nothing in the effort to create sustainable job growth.

Copyright 2010, CNN

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