Budget analysts warn of long-range deficit
By Alan Fram
The Associated Press
WASHINGTON — The government's three chief benefit programs are so huge and growing so rapidly that today's spending policies probably will be unsustainable in coming decades without raising taxes to historic highs, the Congressional Budget Office said yesterday.
In a look at the next 50 years, Congress' nonpartisan fiscal analyst also concluded that the problem is so immense that economic growth alone will not solve it.
The three big programs — Social Security, Medicare and Medicaid — are expected to undergo dramatic increases as the aging, 76 million baby-boom generation begins relying on them at the end of this decade. Expenditures also are being driven higher by ballooning health-care costs.
Social Security is so large — and Medicare and Medicaid expanding so rapidly — that limiting the growth of defense, education and other spending would not be enough for sound budget policy, the report said.
"Substantial reductions in the projected growth of spending or a sizable increase in taxes as a share of the economy — or both — will probably be necessary to provide a significant likelihood of fiscal stability in the coming decades," the budget office said in a report.
The 60-page report compared current and future spending and revenues to the size of the U.S. economy, now about $11 trillion. Economists consider the percentage that results a useful way to measure the federal budget over time, because it illustrates how affordable particular programs or policies might be.
The budget office offered six hypothetical scenarios for restraining spending and raising taxes through 2050.
But even scenarios that let trillions of dollars in tax cuts enacted under President Bush expire would mean that "fiscal stability is not assured."
For example, if revenues were allowed to increase from their current 16.2 percent of the economy to their historic 18.4 percent average, and if spending for all programs but Social Security, Medicare and Medicaid were chopped to less than half their current 9.6 percent of the economy, spending on those three benefit programs would have to grow by no more than 0.5 percent annually over inflation "to prevent an indefinite spiraling of federal debt."
The report also warned that if policy makers decided to let the accumulated federal debt continue to grow, it would have "a corrosive and potentially contractionary effect on the economy."
"The bottom line is deficits do matter, and we need to address them," said Rich Meade, Republican staff director of the House Budget Committee.
Said Thomas Kahn, his Democratic counterpart: "The worst thing we could do is approve the Republican agenda, because its extra $1 trillion in new tax cuts would make the long-term budget problem even worse."
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