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  • CBOmemo Jan 04

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    Committee For a Responsible Federal Budget
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    The CBO released a new baseline report projecting larger budget deficits. The projected 2004 deficit increased $332 billion from last year's estimate to $477 billion. The 10-year deficit also increased substantially, from a $1.2 trillion surplus estimated last year to a $2.4 trillion deficit. Most of the changes were due to legislative actions like the Medicare prescription drug bill and lower revenue from economic changes. The report warns that current spending and tax policies are unsustainable and will increase debt levels with negative economic consequences unless reformed to reduce spending growth and hold off on unpaid-for tax cuts.

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    The CBO released a new baseline report projecting larger budget deficits. The projected 2004 deficit increased $332 billion from last year's estimate to $477 billion. The 10-year deficit also increased substantially, from a $1.2 trillion surplus estimated last year to a $2.4 trillion deficit. Most of the changes were due to legislative actions like the Medicare prescription drug bill and lower revenue from economic changes. The report warns that current spending and tax policies are unsustainable and will increase debt levels with negative economic consequences unless reformed to reduce spending growth and hold off on unpaid-for tax cuts.

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    CBOmemo Jan 04

    Uploaded by

    Committee For a Responsible Federal Budget
    The CBO released a new baseline report projecting larger budget deficits. The projected 2004 deficit increased $332 billion from last year's estimate to $477 billion. The 10-year deficit also increased substantially, from a $1.2 trillion surplus estimated last year to a $2.4 trillion deficit. Most of the changes were due to legislative actions like the Medicare prescription drug bill and lower revenue from economic changes. The report warns that current spending and tax policies are unsustainable and will increase debt levels with negative economic consequences unless reformed to reduce spending growth and hold off on unpaid-for tax cuts.

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    of 2

    To: Interested Parties

    From: Maya MacGuineas, Executive Director, the Committee for a Responsible Federal
    Budget, at the New America Foundation
    Date: January 26, 2004
    Re: Newly Released CBO Baseline

    Today the Congressional Budget Office released its newest baseline estimates for revenues,
    expenditures, the deficit and the debt. The report can be accessed at:
    http://www.cbo.gov/showdoc.cfm?index=4985&sequence=0

    The projected FY 2004 deficit of $477 billion is $332 billion larger than what was projected
    in last year’s January baseline. The ten-year estimates for the period from 2004 – 2013 have
    swung by $3.7 trillion from a projected 10-year surplus of $1.2 trillion a year ago to a 10-
    year deficit of $2.4 trillion today.

    Though the general commitment to not spend the Social Security surpluses has been
    relegated to the dustbins of responsible policy making for the time being, it remains
    important to consider the deficit numbers not counting the dedicated Social Security funds.

    The New America Foundation


    1630 Connecticut Ave. N.W. 7th Floor, Washington, DC 20009
    (202) 986-6599/ [email protected]
    Key points:
    ¾ The bulk of the changes in the CBO estimates since the last update (August 2003) come
    from legislative changes, primarily the Medicare prescription drug bill. Revenue changes
    resulted primarily from changing economic assumptions.

    Changes from the August 2003 Baseline:

    Legislative 69%
    Economic/Technical 31%

    Revenues 80%
    Spending 20%
    ¾ The 10-year deficit from 2005 – 2014 is currently projected to be $1.9 trillion
    ¾ Making the tax cuts permanent, as President Bush has requested, would increase the
    2005-2014 deficit by $2.2 trillion (including interest).
    ¾ Fixing the Alternative Minimum Tax would increase the deficits by another $470
    billion.1
    ¾ And assuming a higher rate of growth in discretionary appropriations could increase the
    10-year numbers by from $1.6 trillion to $3.2 trillion.2 Alternatively, removing the $87
    billion supplemental from the baseline and assuming discretionary appropriation growth
    of only inflation would reduce the baseline deficit by $1.1 trillion.
    ¾ In the recently released “The Long-Term Budget Outlook,” the Congressional Budget
    Office finds that unless federal taxes reach an unprecedented level, current spending
    policies will not be sustainable and that the federal debt necessary to fill in the hole
    would have adverse effects on the entire economy. Furthermore, economic growth
    alone is highly unlikely to bring the nation's long-term fiscal position into balance.
    ¾ The President will release his FY 2005 budget next week. Many of the new policy
    initiatives he touched upon in the State of the Union would enlarge the projected
    deficits.

    Conclusion:
    Given the fiscal realities laid out in this new report, it is vital that legislators focus on
    putting the federal budget back on a credible path towards balance -- ideally, without relying
    on the funds intended for Social Security. Reinstating discretionary spending caps and pay-
    go rules will help. But beyond that, a commitment to reining in spending and holding off on
    all unpaid-for tax cuts will also be necessary. The politically unappealing reality staring at
    those on Capital Hill is that it will take a significant slowing of spending growth, or new
    revenues – or most likely both – to return the budget to balance, on-top of addressing the
    structural imbalances within the Social Security, Medicare and Medicaid programs. Failing to
    make these changes puts the security of financial markets, the economy and future
    generations at risk.
    1
    Ignores interaction with extending the tax cuts, which would increase the deficit by another $170 billion over ten
    years.
    2
    The two assumptions are that discretionary appropriations would grow by the growth rate of nominal GDP, and by
    6.9 percent, which is the historical average from 1999 through 2004 excluding the $87 billion supplemental,
    respectively.

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