Current law commits to the Bush tax cuts only until the end of 2010 ($7.1 trillion in deficits);
but President Obama has proposed to extend most of the Bush tax cuts in his budget proposal ($9.1 – $10.3 trillion); and
therefore Obama Administration tax policy is not that different from where we’d end up if we extended all of the Bush tax cuts (as Senator McCain had wanted to do had he become president) ($11.3 trillion).
The Concord Coalition Plausible Baseline, created using the Congressional Budget Office’s (CBO) updated projections, shows that current policy would lead to $14.4 trillion in deficits over the next 10 years. The Concord coalition assumes that the cost of wars wind down.
The Concord Deficity Projection Baseline makes some key assumption changes to the CBO baseline. CBO is required to assume that congressional appropriations continue increasing only at the rate of inflation for the 10 year baseline. They also extend emergency supplemental at their “current” level plus inflation over the duration of the baseline. For tax legislation, they assume current law will govern–so if there are tax cuts that have sunsets (as the 2001 and 2003 tax cuts have), CBO is required to project revenues assuming the tax cuts expire as written in the legislation. They also project economic growth in a very conservative fashion–they do not try to anticipate major changes in the economy, either recessions or accelerations.
The Concord Coalition takes the CBO baseline and adjusts it to assume appropriations increase at the same rate as the economy (GDP growth). This increase is closer to the historical average rate of increase. We also assume that supplemental appropriations do not continue indefinitely. For recent appropriations for the wars in Iraq and Afghanistan, we include realistic estimates from CBO about how much will be spent under a scenario where troop levels slowly decrease to about one-third of their level at the time of the estimate. For taxes, we assume that all of the major tax cuts will be extended beyond 2010. We also assume the one-year patches to the Alternative Minimum Tax will continue to be enacted, holding the level of taxpayers hit by the tax roughly constant throughout the baseline period. Finally, we include a calculation for the increased debt service (interest payments) that these policies would cause by their increasing the deficit. We do not make any changes to CBO’s economic assumptions.
“Today’s numbers illustrate that we have a revenue crisis in the federal budget as much as a health care crisis. The federal revenue system is clearly failing to keep up with our nation’s spending needs. Since last September, the 10-year revenue forecast has shrunk by over $3 trillion solely due to deteriorating economic conditions. What’s troubling is that even without any more tax cuts and even after the economy is expected to recover, today’s reports show revenues will continue to fall short. It is time to rethink tax policy, from the deficit-financed extensions of the 2001 and 2003 tax cuts proposed by the administration, to an even broader look at how to increase the revenue base,” said Concord Coalition Chief Economist Diane Lim Rogers.
Under the plausible baseline, revenues would average 16.4 percent of GDP over the next decade — the lowest 10-year average since 1942-1951. Even under the administration’s optimistic projections, revenues average only 18.4 percent through 2019. While this is in line with the 40-year historical average, it comes during a time of unusually high spending (23.5 percent) — as stimulus gives way to increased entitlement spending, caused by an aging population and health care cost inflation, and growing interest rates and continued deficits lead to increasing debt service.
US Federal Budgets past, present and future