Friday, July 1, 2011

CBO Reported Federal Budget Outlook For At Least The Next Decade Is Daunting

The federal budget outlook for at least the next decade “is daunting,” the Congressional Budget Office (CBO) said in a report released on June 23. (CBO's 2011 Long-Term Budget Outlook) The report presented the agency's projections of federal spending and revenues over the coming decades. Under current law, there will be a sharp increase in federal spending for health care programs and Social Security, the report said. “If revenues remained at their historical average share of gross domestic product (GDP), such spending growth would cause federal debt to grow to unsustainable levels,” CBO said. A “sustainable budgetary path” will require a substantial increase in revenues as a percentage of GDP, a significant decrease in spending from projected levels, or some combination of these approaches, CBO said. The report offers two possible scenarios. The first, CBO's extended-baseline scenario, closely follows current law. As described in the report, under this scenario, the expiration of the tax cuts enacted since 2001 and most recently extended in 2010, the growing reach of the alternative minimum tax, the tax provisions of the recent health care legislation, and the interaction of the tax system with economic growth would result in steadily higher revenues relative to GDP. Revenues would reach 23% of GDP by 2035—much higher than has typically been seen in recent decades—and would grow to larger percentages thereafter, the report said. Under the second scenario, the alternative fiscal scenario, “the budget outlook is much bleaker,” CBO said. This scenario “incorporates several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period,” the report said. According to CBO, it makes important assumptions about revenues: that the tax cuts enacted since 2001 and extended most recently in 2010 will be extended; that the reach of the alternative minimum tax will be restrained to stay close to its historical extent; and that over the longer run, tax law will evolve further so that revenues remain near their historical average of 18% of GDP. The report is available at

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