Centrists.Org No-BS Budget Baseline updated 5/24/2003
for enactment of H.R. 2 "Jobs and Growth" Tax Relief Reconciliation Act of 2003
A Realistic, No-Gimmick Baseline -- The Baseline CBO Should Do, But Doesn't.
Centrists.Org, No-BS Budget Baseline Tables:
Table 1. Federal Budget in Billions of Dollars, 2000-2030
Table 2. Federal Budget as a Percent of GDP, 2000-2030
Table 3. Summary Table, 2000-2030 in 10-Year Intervals
Summary: Under realistic political assumptions, the current budget outlook is very poor. Centrists.Org projects that the federal deficit will be about $365 billion in 2003 and $400 billion 2004, which is about 3.5 percent of GDP. The deficit will fall to about $350 billion in 2006 and 2007, about 2.6 percent of GDP. However, toward the end of the decade, as the first of the baby boom generation begins to retire and claim entitlement benefits, the deficit would begin rising rapidly. Centrists.Org's long-run projections imply that deficits would begin to exceed 6 percent of GDP by 2020.
Background: Three times a year, in late January, March, and August, the Congressional Budget Office (CBO) publishes a "current-law" budget baseline. CBO's baseline is the benchmark against which it estimates the cost of proposals to raise or cut federal spending, and the Joint Committee on Taxation (JCT) uses CBO's baseline projections for revenues as the benchmark for its estimates of tax bills. CBO's baseline assumes that federal tax laws and entitlement programs remain unchanged, and that discretionary spending (that is, spending appropriated for non-entitlement programs, such as defense and domestic programs) grows at the rate of inflation.
At this point, however, CBO's baseline presents a serious problem for policymakers: It is not useful as a rough forecast of federal spending and revenues. That is because several of the assumptions behind the CBO baseline are not politically realistic. For example, many tax cuts are scheduled to expire via so-called "sunset" provisions. Congress is highly likely to extend those provisions. Furthermore, Medicare law contains provisions that would otherwise reduce fees paid to doctors and other health care providers. Either Congress or the Adminstration will almost certainly find ways to raise those payments. Finally, CBO's baseline assumes that discretionary spending grows only as fast as general inflation. However, spending for defense, international, and domestic programs is currently growing at double digit rates -- several times the rate of inflation.
Many of these problems are the fault of Congress. Sunset provisions, payment gimmicks, and understated baselines for discretionary spending are legislators' ways of hiding their irresponsibility. CBO's projections don't look that bad under the artificial assumption that tax cuts expire on their sunset dates, health care payments are not fixed, and legislators suddently downshift the pace of their appropriations.
Assumptions. Centrists.Org's no-BS baseline is different. It is not a purely "current law" baseline. Instead, it attempts to make politically realistic assumptions about technical fixes to the budget that are almost certain to occur. From time to time, the Centrists.Org baseline will assume that legislation that appears immenent will in fact be enacted. This gives the public a better picture of the budget going forward.
The current Centrists.Org no-BS baseline assumes that most "sunset" provisions are extended, and that some payment rules in Medicare are corrected. Those actions are not absolutely certain, but they are the most plausible assumption for a reasonable projection of the budget. Second, Centrists.Org assumes that discretionary spending grows at the same rate as nominal GDP (which is higher than the rate of inflation, but still considerably slower than discretionary spending growth in recent years).
Under those more realistic assumptions, the current budget outlook is poor. Centrists.Org projects that the federal deficit would be about $365 billion in 2003 and $400 billion in 2004, which is about 3.5 percent of GDP. The deficit will fall to about $350 billion by 2005, about 3 percent of GDP. However, toward the end of the decade, as the first of the baby boom generation begins to retire and claim entitlement benefits, the deficit would begin rising rapidly. Centrists.Org's long-run projections imply that deficits would exceed 6 percent of GDP by 2020.
Of course, Congress may take actions to rescind tax cuts, cut entitlement spending, and slow the growth of appropriations. In that case, the deficit would be reduced. However, it makes sense to project the budget assuming those things do not happen, so that legislators will have a truer picture of the consequences of their current spending and tax cutting binge.
Centrists.Org, No-BS Budget Baseline Tables:
Table 1. Federal Budget in Billions of Dollars, 2000-2030
Table 2. Federal Budget as a Percent of GDP, 2000-2030
Table 3. Summary Table, 2000-2030 in 10-Year Intervals
Links:
Congressional Budget Office, Cost Estimate of H.R. 2, The Jobs and Growth Tax Relief Reconciliation Act of 2003 (May 23, 2003)
Joint Committee on Taxation, Estimated Budget Effects of the Conference Agreement for H.R. 2 "The Jobs and Growth Tax Relief Reconciliation Act of 2003 (May 22, 2003)
Joint Committee on Taxation, Summary of Conference Agreement for H.R. 2, The Jobs and Growth Tax Relief Reconciliation Act of 2003 (May 22, 2003)
Committee for Economic Development, Exploding Deficits, Declining Growth: The Federal Budget and the Aging of America, Policy Statement (March 2003)
Centrists.Org, April Revenues Weak: FY2003 Deficit Likely to Top $350 Billion (May 10, 2003)
Centrist Policy Network, Another Gimmicky Tax Cut (May 16, 2003)
Centrist Policy Network, Bush Should Remember the Next Generations (May 13, 2003)
