CBO: U.S. likely to face long-term fiscal woes
Thursday, December 15, 2005 8:44:16 PM
afxpress.com
WASHINGTON (AFX) - Under most long-range scenarios, the federal government will see bigger deficits and skyrocketing debt unless policymakers take steps to rein in expected growth in Social Security, Medicare and Medicaid spending as baby boomers begin to retire, the Congressional Budget Office warned Thursday
"As health care costs continue to grow faster than the economy and the baby-boom generation nears eligibility for Social Security and Medicare, the United States faces inevitable decisions about the fundamentals of its spending policies and its means of financing those policies," the CBO said in its biannual Long Term Budget Outlook
The report's conclusions are little different than its last long-range report, issued in December 2003
In a speech at the New America Foundation, a Washington think tank, outgoing CBO Director Douglas Holtz-Eakin said the future burdens posed by federal entitlement programs are such that even in a world without hurricane relief, ongoing war spending, budget pork and the extension of recent tax cuts, "our country would face deficits as far as the eye can see and enormous fiscal challenges." In only one scenario in the report, in which federal spending grows much slower than average and revenues grow much faster than average, does the federal budget post a long-term budget surplus
But that scenario assumes bracket creep, in which real income growth pushes taxpayers into higher tax brackets, and the alternative minimum tax would combine to cause revenues to continually rise until they reach 23.7% of GDP in 2050, well above the range of 16.1% to 20.9% seen since 1951. It also assumes a reduction in spending that's unlikely unless there are significant changes in health policy, the report said
The worst-case scenario sees federal debt equal to 130% of GDP by 2030, growing steadily after that, the report said, noting that the forecast doesn't take into account the harmful effect long-term deficits would have on economic growth
Holtz-Eakin dismissed notions that future economic growth would be sufficient to close the long-term fiscal gap
"You can't grow your way out of this problem. It's just too big," Holtz-Eakin said
The report concluded that fiscal policy could be financially sustainable if the growth of health care costs slowed significantly from historical rates. But tax revenues would still probably need to be higher than they have been in the past, unless other spending growth is also curbed, the CBO said
If taxation is held at levels seen in the past, spending on programs for the elderly would need to see substantial cuts. Slowing growth of spending for defense, education, transportation, and other discretionary programs wouldn't be enough to ensure fiscal sustainability, the CBO said
Holtz-Eakin will leave his post at the end of the month to take a position with the Council on Foreign Relations, a think tank. The former chief economist for President Bush's Council of Economic Advisers, Holtz-Eakin has served as CBO director since 2003 |
