August 19, 2010 | WebMemo on Budget and Spending
The Congressional Budget Office (CBO) has updated its 10-year budget baseline, and America’s fiscal outlook continues to worsen. The CBO projects $6.2 trillion in additional deficits over the next decade. This darkening budget forecast would have been even worse, were it not for the unrealistic assumptions that Congress requires the CBO to employ to make future budget deficits appear smaller.
With more realistic assumptions, the budget baseline shows that:
These spending and deficit trends are completely unsustainable. Yet President Obama and Congress continue to push spending and budget deficits even higher with endless failed “stimulus” spending that is now expected to continue into the middle of this decade. They have also enacted a massive new health care law that—far from reining in spiraling health care costs—increases spending (and likely deficits) even further. In short, Washington is digging this budget hole deeper.
Building a Baseline with More Reasonable Assumptions
Congress requires the CBO to include the following unrealistic assumptions in its 10-year baseline: 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, and non-war discretionary spending will grow no faster than inflation through 2020.
Using the “alternative assumptions” section of the CBO report, this paper’s projections adjust the CBO’s baseline with the following assumptions:
Under this more realistic budget baseline, the annual budget deficit never drops below $1 trillion. Rather, it ends at $1.3 trillion in 2010, drops to $1.0 trillion by 2014, and rises back to 1.9 trillion by 2020 (see Table 1).
General Budget and Spending Trends: A Look Back
General Budget and Spending Trends: Looking Forward
Deficits and Public Debt
Difficult Decisions Needed: What to Do
Genuine spending reforms are the only way to bring the budget under control. Lawmakers should rescind the remaining funds from TARP and the failed stimulus bill, as well as repeal the unaffordable health care law. Next, they should enact tough spending caps to help lawmakers set priorities and make trade-offs. Congress should then 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.
These spending reforms may not be easy, but the alternative—record government debt and historic tax increases—is even worse.
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.
This does not even count the burgeoning state and local government debt.
Adjusted for inflation.
Past budget data comes from Office of Management and Budget, “Budget of the United States Government: 2011 Historical Tables,” at http://www.whitehouse.gov/omb/budget/historicals/ (August 19, 2010). Future projections were calculated by The Heritage Foundation using Congressional Budget Office, “The Budget and Economic Outlook: an Update,” August 2010, at http://www.cbo.gov/ftpdocs/117xx/doc11705/08-18-Update.pdf (August 19, 2010).
Adjusted for inflation.
Brian Riedl “The Three Biggest Myths About Tax Cuts and the Budget Deficit,” Heritage Foundation Backgrounder No. 2423, June 21, 2010, at http://www.heritage.org/Research/Reports/2010/06/The-Three-Biggest-Myths-About-Tax-Cuts-and-the-Budget-Deficit.
For fiscal year (FY) 2009, President George W. Bush is assigned $1.186 trillion in deficit spending (the CBO estimate for FY 2009 when he left office), while the remaining $228 billion in 2009 deficit spending is attributed to President Obama.
See Douglas W. Elmendorf, Director, Congressional Budget Office, letter to Representative Paul Ryan (R–WI), June 30, 2009, at http://www.cbo.gov/ftpdocs/104xx/doc10416/RyanLetterInterestRates.pdf (August 19, 2010).
Congressional Budget Office, “The Long-Term Budget Outlook,” June 2010, Figure 1.1, at http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf (August 19, 2010) and supplemental data for Figure 1.2, at http://www.cbo.gov/ftpdocs/115xx/doc11579/LTBO-2010data.xls (August 19, 2010). This represents the alternative fiscal scenario.
Stuart M. Butler, 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.