TPC Releases New Long-Term Federal Budget Projections
by Gary Therkildsen*, 4/30/2010
The Tax Policy Center (TPC), a joint project of the Urban Institute and the Brookings Institution, released a new report yesterday examining the nation's budget outlook over, what TPC describes as, "10-year and long-term horizons." The paper, whose title recalls a famous Yogi Berra quote, examines these horizons under three sets of assumptions: the Congressional Budget Office (CBO) baseline, an extended policy scenario, and the administration's FY 2011 budget proposal.
Unfortunately, none of the projections made under the three sets of assumptions is very encouraging, and reading the report makes one really hope for the president's new debt commission to produce results. Besides that, though, there are a couple interesting points to pick out from the paper, which was authored by economists Alan Auerbach and William Gale.
First, Auerbach and Gale observe, "The long-term fiscal gap – the size of the immediate and permanent change in spending or taxes needed to keep the long-term debt/GDP ratio at its current level – is in the range of 6-9 percent of GDP." If you assume current gross domestic product (GDP) – the yearly sum of the country's economic output – to be somewhere in the neighborhood of $14.6 trillion, then to keep the long-term debt/GDP ratio at current levels, which is around 60 percent, then Congress will have to adjust spending or taxes by roughly $876 billion to $1.3 trillion.
Looking at those numbers, it's fairly obvious that the above scenario for adjusting spending and taxes is not an either-or situation. Members of Congress are going to need to both reduce spending, mandatory and discretionary, and raise taxes to keep the long-term debt/GDP ratio from approaching levels that economists can't say for sure wouldn't produce catastrophic consequences.
One of the ways to reduce mandatory spending is to lower the amount of money the government spends on health care. Indeed, reductions in health care costs can go a long way in achieving that long-term debt/GDP ratio balance. In their second point, though, Auerbach and Gale declare, "the problem is far too large to be solved by plausible reductions in health care spending alone."
I don't know of any economists or analysts that predicted health care reform would be a silver bullet for the country's long-term debt problems. I do know that the president argued that in order for his administration to even begin to tackle deficits, and in turn deal with the debt, he needed health care reform to pass, but I'm quite sure that lawmakers realize they are going to have to address other budget areas as well.
Finally, Auerbach and Gale exhort lawmakers to address the long-term debt issue soon. They claim, "Postponing the onset of a fiscal package will make the problem even harder: even just a 5-year delay in implementation would raise the required fiscal adjustment by about 0.4 percent of GDP, or almost $60 billion per year."
Look, I realize that the long-term budget outlook is a disaster, but comments like the above only reinforce what is the new conventional wisdom on Capitol Hill: that recent spending has caused current deficits and Congress must slash discretionary spending to deal with it. Moreover, comments about immediacy strengthen the hand of deficit hawks, like those great folks over at the Peter G. Peterson Foundation, who want to use the current situation to gut and privatize this country's fragile and shrinking social safety net.
There are different ways to go about bringing the deficits and debt under control. One way would be to lower discretionary spending to painful levels and destroy Medicare and Social Security, all while continuing to dump hundreds of billions of dollars into wasteful and unproductive defense and homeland security programs. Another route, which unfortunately isn't getting a lot of attention, is to make the rich and large corporations pay their appropriate share, while cutting some of the more egregious military spending. Let's address the country's long-term debt, but let's do it in a sensible way that doesn't devastate the poor and downtrodden and leave's the middle class more vulnerable to the wealthy and big business.
Image by Flickr user WELS.net used under a Creative Commons license.