How to spoil the party
Published on 7/24/2001- Editorial from the New London DAY

Just as the Bush administration prepares to mail back to Americans politically popular tax rebates, along comes the killjoy Concord Coalition with a dose of budget reality.

Co-chaired by two cautious former U.S. senators, Warren Rudman of New Hampshire and Sam Nunn of Georgia, the Concord Coalition is not known for hysterical predictions of gloom. Rather, the organization has consistently delivered cold, statistical evidence to use in measuring the grandiose political proclamations that come out of Washington. And even though long-range projections are tricky, the numbers raised by the Coalition suggest it's time for continued scrutiny of spending.

The Concord Coalition, a nonprofit budget study group, is particularly concerned about the accuracy of the Congressional Budget Office's 10-year projection for revenues and surpluses. The CBO is, too. It says assuming that nothing changes in the fundamental economic picture for 10 years is a dangerous game.

What the Congress should do is to continue to constrain spending and begin to reform the Medicare and Social Security systems. Without those changes, the federal budget will again slip into deep deficits.

U.S. Comptroller General David Walker told the Senate Budget Committee last February that:  “Our (Government Accounting Office) long-term simulations ... show that spending for federal health and retirement programs eventually overwhelms even today's projected surpluses. This is true even assuming no additional spending for defense, education, or, a Medicare prescription drug benefit. ...The aging of the population, which will truly begin to affect the budget just after the 10-year budget window ends, is one key backdrop for the choices this Congress will make.”

Some examples:

The 800-pound gorillas lurking over the budget “surpluses” are Social Security, Medicare and Medicaid, which currently make up 43 percent of the federal budget, as opposed to just 15 percent in 1965.

Social Security will run a deficit by 2016 and the annual deficit just nine years later will be $400 billion. By 2038, the deficit annually could exceed $1 trillion, the Concord Coalition estimates.  At present, a tax rate of 10.5 percent pays for Social Security benefits. By 2040, if the trend continues, the tax would increase to 17.7 percent of payroll.  If Congress does not reform Social Security, the Coalition says, a 35-year-old today will receive just 87 cents of a Social Security dollar by the time he or she retires. A 25-year-old would get just 72 cents of the current dollar.

Current spending trends are not good either. From 1991 to 1998, discretionary spending rose at an annual rate of just 0.4 percent, or less than one-half of 1 percent while there were projected deficits.  But since surpluses appeared in 1998, discretionary spending rose at an average of 5.3 percent annually. In other words, Congress has begun to be less careful about restraining spending.

The timing of President George W. Bush's tax cuts, backloaded to the last four years of the 10-year period, could have a traumatic effect on projected surpluses as well. Specifically, 49 percent of the tax cuts take place from 2007 to 2010. The tax cuts are based on CGO projections for 10 years, but the CBO itself says that such projects are very speculative because they take place over too long a period.  Further, if the tax rebates end as scheduled after 10 years, there is likely to be a strong reaction from taxpayers. Here's why:
 


The political storm created by those changes could well result in pressure to extend the tax cuts during a period when the entitlement programs such as Medicare and Social Security would be running into trouble.  Congress must continue to watch spending so that conservative budgeting allows the nation to avoid serious budget deficits once again.