The 10 Year Budget Outlook
The Congressional Budget Office has provided a 10 year benchmark for tax revenues, outlays, and deficits/surpluses. Below are some of the numbers from the table,
|Total Deficit or Surplus||-248||-172||-98||-116||-137||-12||170||159||185||208||192||249|
|Source: Congressional Budget Office|
Around 2011 things start to look pretty good. The deficit is projected to be only $12 billion dollars and after that there is a surplus. But there is some bad news there. The reasons that things get better is that what are broadly described as the Bush tax cuts (the conomic Growth and Tax Relief Reconciliation Act of 2001 and Jobs and Growth Tax Relief Reconciliation Act of 2003) expire on Dec. 31 of 2010. Also, the Alternative Minimum Tax will take a bigger and bigger bite out of tax payers. Changing either of these two things will change the above chart to increase the deficit and push back the years in which the budget will reach surplus. Extending the Bush tax cuts could reduce revenues by $3 trillion dollars over the 10 year period according the CBO. That number might be reduced somewhat if dynamic scoring is used, but it wouldn’t be a significant reduction.
A bit of good news is that the CBO is forecasting improved economic growth in 2008. The forecast for 2007 is 2.3% (which, by historical standards is fairly low), but with a bit of a rebound in 2008 to 3.0%. But this good news should be taken in the context of some serious fiscal problems facing the country, namely Medicare, and to a lesser extent Social Security. The following graph makes clear the problem,
Projected Growth of the U.S. Economy and Federal Spending for Major Mandatory Programs
(Cumulative nominal percentage growth from 2006 level)
Yes, Medicare spending is projected to double by the end of 2017. Notice that the growth rate of GDP is lower than that of Medicare. If these growth rates hold, then it is merely a matter of time before Medicare’s budget is greater than the whole of America’s GDP. If the CBO’s estimate for the growth rate of Medicare is correct every 10 years Medicare’s budget will double, so in 2017 it will be 2x today’s budget. In 2027 it will be 4x and by 2037 it will be 8x. If nothing is done to stop this kind of growth it will stop itself. Most likely by having the U.S. economy collapse under such a strain.
So, while the short term looks good, the long term outlook is not so great. No economic growth cannot save us unless growth takes a sudden and permanent shift upwards–i.e. growth doubles from now to eternity–and hoping for this strikes me as a really bad policy.