CBO: Confronting the Nation's Fiscal Policy Challenges

The federal government is confronting significant and fundamental budgetary challenges. If current policies are continued in coming years, the aging of the population and the rising cost of health care will boost federal spending, as a share of the economy, well above the amount of revenues that the federal government has collected in the past. As a result, putting the federal budget on a sustainable path will require significant changes in spending policies, tax policies, or both.

Beyond the coming decade, the fiscal outlook worsens, as the aging of the population and the rising costs of health care exert significant and increasing pressure on the budget under current law.

The nation cannot continue to sustain the spending programs and policies of the past with the tax revenues it has been accustomed to paying. Citizens will either have to pay more for their government, accept less in government services and benefits, or both.

So per the CBO, assuming the economy recovers like it hasn’t (and won’t) and….
CBO’s baseline projections incorporate the assumption that current law remains in place so they can serve as a benchmark for policymakers to use in considering possible changes to the law. But those baseline projections understate the budgetary challenges facing the federal government because changes in policy that will take effect under current law will produce a federal tax system and spending for some federal programs that differ noticeably from what people have become accustomed to. Specifically, CBO’s baseline projections include the following policies specified in current law:
Lawmakers love to make laws. No one goes to DC saying “I hope to make no changes to current law!”

- Provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Public Law 111-312, referred to in this testimony as the 2010 tax act) that reduced the payroll tax for one year and limited the reach of the alternative minimum tax (AMT) for two years are set to expire on December 31, 2011.
Obama is doubling down on the Tax Act of 2010 including the payroll tax cut. Republicans will add the sweeteners that Obama goes along with so this assumptions is at best invalid and at worse will be two, three or four times as bad.

- Several other key provisions of the 2010 tax act—including the extension of lower tax rates and expanded credits and deductions originally enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and the American Recovery and Reinvestment Act (ARRA, P.L. 111-5)—are set to expire on December 31, 2012.
Extending the Bush tax cuts will be one of those sweeteners for extending and increasing the payroll tax cut. This assumption won’t pan out.

- Medicare’s payments for physicians’ services are scheduled to be reduced by nearly 30 percent after December 31, 2011.
Yeah. Right. /s This assumption won’t pan out.

- Discretionary appropriations between 2012 and 2021 will be subject to statutory caps set in the Budget Control Act of 2011 (P.L. 112-25) that will reduce discretionary spending in real (inflation-adjusted) terms over time.
The debt committee is tasked with finding LONG TERM reductions, reductions so far in the future, no one will remember what they agreed to. Obama now in fact is arguing for more spending on education and science. This assumption won’t pan out.

- Additional budgetary savings of more than $1 trillion required by the Budget Control Act will occur as a result of legislation produced by this Committee or, if lawmakers fail to enact such legislation, by means of automatic cuts in spending that will then be triggered.
See the comment about the debt committee above.

We are so screwed.

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