Budget Outlook is Grim
April 8, 2004
A January 2004 Congressional Budget Office (CBO) report projects that the federal deficit will disappear by 2014 -- but that claim is based on unrealistic assumptions. In truth, the long-term budget outlook is much worse, says Bruce Bartlett:
- Congressional appropriators are likely to lard the budget with pork barrel spending, making the fiscal situation worse.
- The CBO projects that extending all of the tax cuts enacted since 2001 would reduce federal revenues by $2.3 trillion between 2005 and 2014.
- Public outcry over the Alternative Minimum Tax will become immense; but just indexing the AMT to inflation will reduce projected revenues by almost $500 billion between 2005 and 2014.
Entitlements are also a problem:
- Medicare is projected to rise from 2 percent to more than 12 percent of GDP over the same period -- more than $1 trillion per year in today's economy, and the absolute minimum increase we can expect.
- The recent addition of an expensive and underfunded Medicare benefit for prescription drugs means that future spending will be much greater than projected by the Social Security and Medicare Trustees.
Without entitlement reform, taxes will probably rise by an amount at least equal to the projected rise in entitlement spending. President Bush has talked about the need to reform Social Security, but the budget makes clear that Medicare is an even greater problem -- and in need of immediate reform.
The budget itself admits that these trends are "unsustainable." If Congress is unwilling to reduce its future obligations to retirees, the only way to make these trends sustainable is by raising taxes significantly, a move unlikely to be welcomed by American taxpayers, explains Bartlett.
Source: Bruce Bartlett, "Deficits and Taxes," Brief Analysis No. 471, National Center for Policy Analysis, April 8, 2004.
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