Congressional Budget Office Projections: No Change in Bleak Long-Term Fiscal Outlook

Just over a month after the White House released its misleading and overly optimistic budget projections, the Congressional Budget Office (CBO) released an update to their Budget and Economic Outlook last week. The CBO report is far more realistic in its long-term assumptions and therefore shows little change in our country's dismal long-term fiscal outlook. Similar to the July Office of Management and Budget (OMB) projections, the CBO report foresees a $331 billion deficit for fiscal year 2005 (FY05), a $33 billion reduction since CBO released an initial estimate in March. CBO also has increased their estimate of the total deficits over the next ten years by more than $1.1 trillion to $2.1 trillion. These estimates are much more worrisome (and accurate) than OMB numbers, with CBO projecting ten-year deficits from 2006 - 2015 to be $600 billion more than OMB. Unlike the OMB numbers, CBO finds very little reason to be optimistic about the future health of the federal government. They write, "Although the deficit for 2005 is lower than previously expected, the fiscal outlook for the coming decade remains about the same as what CBO described in March." In March, CBO described a very dark future if current policies are continued. This CBO report casts further doubt on Bush administration claims that its economic policies are working to spur strong economic growth and will continue to shrink deficits. CBO has confirmed what many private analysts have reported: the recent jump in federal revenue is due to short-term, temporary factors that are unsustainable, and over the long-term the country still faces large and difficult fiscal challenges. CBO concludes, "Over the long-term, then, growing resource demands...will exert pressure on the budget that economic growth alone will not eliminate." Yet even the CBO's long-term projections do not reveal just how troubling our budgetary outlook is. The CBO is required by law to assume the continuation of current policies, the most important for its current estimates being the expiration over the next five years of most of the tax cuts legislated in 2001 and 2003. Since it is unlikely the Republican-controlled Congress will not act to extend those tax cuts (with some of them already slated to be extended this fall in a congressional reconciliation bill), deficits will likely be much higher than CBO projections. In fact, extending all of President Bush's tax cuts will add an additional $1.6 trillion to the deficit over the next ten years, according to the CBO report. The Senate Budget Committee's most senior Democrat, Kent Conrad (D-ND), believes the nation needs a "serious fiscal wake-up call" if Congress is to correct the long-term budget shortfalls that "threaten our economic security." The increased payments on the debt due to the long and sustained deficits alone will begin to put enormous pressure on the entire federal budget just as the baby-boomer generation begins to retire en mass. This pressure, along with the possible continuation of reckless budget and tax policies, could mean a recipe for disaster for our nation's financial health. The current administration should be more straight-forward in addressing serious concerns regarding national economic security and begin an honest dialog with Congress about adopting alternative policies that will return the country to a sound and sustainable fiscal path.
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