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Budget Outlook Getting Worse, CBO Report Shows
Posted By Patrick Louis Knudsen On January 31, 2012 @ 6:07 pm In Featured | Comments Disabled
The figures released today by the Congressional Budget Office  (CBO) once again reflect the magnitude of the federal government’s fiscal problem and the urgent need for Congress and the President to address it. Some key points:
For the 10 years covered by the report (2013 through 2022), CBO’s conventional figures vastly understate the magnitude of the problem, because CBO employs several unrealistic assumptions in its estimates. Among them: It assumes the Bush tax cuts will expire at the end of this year as scheduled, and the Alternative Minimum Tax will broaden to ensnare a greater number of taxpayers. It also assumes Congress will allow a sharp reduction in payments to Medicare physicians.
These assumptions are highly unlikely. Consequently, CBO developed an alternative fiscal scenario based on more realistic assumptions and therefore closer to the likely fiscal outcomes over the next 10 years. CBO’s alternative projections include the following:
Either scenario demonstrates an urgent need for action by Congress or the President to curb the government’s runaway spending.
The Entitlement Problem
The core of the problem is spending. In CBO’s more realistic assumptions, spending continues growing at unsustainable rates, rising from $3.6 trillion this year to $6 trillion in 2022, or 24.4 percent of economic output. Tax revenues will rise above their historical levels—even with the Bush tax cuts made permanent. Thus, it is this relentless spending that results in continuing deficits near or above $1 trillion throughout the decade.
The principal drivers of this spending are the entitlement programs, especially Medicare, Medicaid, and Social Security. These three programs alone will cost $1.592 trillion this year, about 44 percent of total federal spending. By 2022, if they are not reformed, these programs will total $2.991 trillion, almost half the budget (49.8 percent).
Obamacare added even more entitlement spending. The health insurance subsidies and exchanges in the program add a whopping $645 billion in spending over the next 10 years, and his expansions of the State Children’s Health Insurance Program add another $78 billion.
These figures are further evidence that Congress and the President must begin restructuring these programs soon. With every month of delay, the spending problem grows larger, and the actions needed to fix it become more wrenching.
Reckless Defense Cuts Keep Mounting
CBO’s report also reflects the devastating spending cuts that still hang over national defense. The Budget Control Act (BCA)—a product of last year’s debt ceiling debate—resulted in two rounds of planned defense reductions. The first comes from spending caps, which reduce spending by $840 billion through 2021. Depending on how those reductions are distributed among discretionary programs, they could reduce defense resources  over the period by somewhere between $445 billion (6.8 percent) and $825 billion (13.2 percent).
Second, because the BCA-created “super committee” failed to propose any further spending reductions, the BCA imposes a crude, automatic spending cut, called a “sequester,” totaling $1.2 trillion from 2013 through 2021. Of that amount, $492 billion is to come from defense.
These reckless reductions are further crippling military readiness. Congress should rewrite this sequester promptly to find the $1.2 trillion in savings elsewhere, so that national security is not devastated. In the end, CBO’s report today is more of the same: The nation has a spending and debt crisis, and it is getting worse.
Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2012/01/31/budget-outlook-getting-worse-cbo-report-shows/
URLs in this post:
 Congressional Budget Office: http://www.cbo.gov/doc.cfm?index=12699
 reduce defense resources: http://www.heritage.org/research/reports/2012/01/pentagon-preview-of-defense-budget-shows-reduced-military-capabilities
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