January 7, 2009 | WebMemo on Federal Budget
The Congressional Budget Office (CBO) recently released its annual 10-year budget baseline. However, Congress requires the CBO to include unrealistic assumptions in its baseline. Therefore, the CBO also provides a set of alternative budget assumptions that can be used to build a more realistic baseline. A realistic baseline shows that historic spending increases are projected to drive the budget deficit to $1,220 billion in 2009 and $1,477 billion by 2019--even before any additional economic "stimulus" bills are enacted.
Genuine spending reforms are the only way to bring the budget under control. Lawmakers should reject additional "stimulus" spending that will not prove any more effective than the previous failed "stimulus" bills. Instead, they should aid the economy by reducing marginal tax rates and extending current tax cuts. Next, lawmakers should enact tough spending caps to help lawmakers set priorities and make trade-offs. Then, Congress should disclose the massive unfunded obligations of Social Security, Medicare, and Medicaid; put those programs on long-term budgets; and create an entitlement reform commission. Finally, lawmakers should enact the necessary entitlement and programmatic reforms that can keep government within those limits.
Building a Baseline
Congress requires the CBO to include in its 10-year baseline the following unrealistic assumptions: The 2001 and 2003 tax cuts and all other temporary tax cuts will expire; the Alternative Minimum Tax (AMT) will not be annually adjusted for inflation; non-war discretionary spending will grow no faster than inflation through 2019.
The projections used in this paper adjust the CBO's baseline with the following assumptions:
Under this more realistic budget baseline, the budget deficit reaches $1,220 trillion in 2009, drops to $718 billion by 2012, and rises back to $1,477 billion by 2019 (see Table 1).
If an $800 billion stimulus package is enacted, the deficit would raise by approximately $400 billion in 2009 and 2010, with net interest costs rising thereafter.
General Budget and Spending Trends 
Deficits and Public Debt
Taxes and Tax Policy
The Tsunami Is Coming
The new budget baseline shows a historic expansion of government occurring right as the first baby boomers begin collecting Social Security and Medicare benefits. Current spending trends are absolutely unsustainable. If lawmakers continue to avoid necessary budget reforms, they are guaranteeing a future of record government debt and historic tax increases.
Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
 J. D. Foster, Ph.D., and William W. Beach, "Economic Recovery: How Best to End the Recession," Heritage Foundation WebMemo No. 2191, January 7, 2008, at http://www.heritage.org/Research/Economy/wm2191.cfm.
 Stuart M. Butler, Ph.D. et. al, "Taking Back our Fiscal Future" Heritage Foundation White Paper, March 31, 2008, at http://www.heritage.org/Research/Budget/wp0408.cfm. See also Alison Acosta Fraser, "The SAFE Commission Act (H.R. 3654) and the Long-Term Fiscal Challenge," testimony before the Committee on the Budget, United States House of Representatives,June 25, 2008, at http://www.heritage.org/Research/Budget/tst062508b.cfm.
 For proposals, see Brian M. Riedl, "A Guide to Fixing Social Security, Medicare, and Medicaid," Heritage Foundation Backgrounder No. 2114, March 11, 2008, at http://www.heritage.org/Research/Budget/bg2114.cfm.
 Past budget data comes from Office of Management and Budget, Budget of the United States Government: 2009 Historical Tables, at www.whitehouse.gov/omb/budget/fy2009/hist.html (January 7, 2009). Future projections were calculated by The Heritage Foundation using Congressional Budget Office, "The Budget and Economic Outlook: Fiscal Years 2009 to 2019," January 2009, at /static/reportimages/B01D5DA87800ACDDFCF0F58A410CD6C2.pdf (January 7, 2009).
 CBO calculated the TARP cost by assuming a subsidy rate of just over 25 percent of the final $700 billion purchasing authority. This is a very rough estimate.
 See Brian M. Riedl, "Why Government Spending Does Not Stimulate Economic Growth," Heritage Foundation Backgrounder No. 2208, November 12, 2008, at http://www.heritage.org/Research/Budget/bg2208.cfm; Foster and Beach, "Economic Recovery."
Congressional Budget Office, "The Long-Term Budget Outlook,"
December 2007, Figure 1.2, at www.cbo.gov/ftpdocs/88xx/doc
8877/12-13-LTBO.pdf, and supplemental data for Figure 1.2 at www.cbo.gov/ftpdocs/88xx/doc8877/SupplementalData.xls. This represents the alternative fiscal scenario.