Doug Elmendorf Speaks! The Message I Hear: Stick to PAYGO and We Are OK...
Our budget is more-or-less balanced over the next 75 years under the current-law baseline, but Doug doesn't believe it:
Long-Term Budget Outlook: The budget outlook is much bleaker under the alternative fiscal scenario, which 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. In this scenario, CBO assumed that:
- Medicare’s payment rates for physicians would gradually increase (which would not happen under current law), and that
- several policies enacted in the recent health care legislation that would restrain growth in health care spending would not continue in effect after 2020. In addition, under the alternative scenario,
- spending on activities other than the major mandatory health care programs, Social Security, and interest would fall below the average level of the past 40 years relative to GDP, though not as low as under the extended-baseline scenario. More important,
- CBO assumed for this scenario that most of the provisions of the 2001 and 2003 tax cuts would be extended, that the reach of the alternative minimum tax would be kept close to its historical extent, and that over the longer run, tax law would evolve further so that revenues would remain at about 19 percent of GDP, near their historical average....
Neither of those scenarios represents a prediction by CBO of what policies will be in effect during the next several decades—but these projections, encompassing two very different sets of policy assumptions, provide a clear indication of the serious nature of the fiscal challenge facing the nation.
The message I hear from this is: stick to PAYGO and we are fine. If Congress has to pay for every deviation from current law it passes--if everything that moves truly has to be deficit-neutral, as Milton Friedman first recommended back in the late 1940s that spending and tax bills needed to be conjoined twins--then things are under control.
If not--if Congress waives PAYGO on a routine and ongoing basis for big-ticket items, as it always has in the past under Republican rule and sometimes does under Democratic rule--we are in trouble.
Worth stressing is the magnitude of the gap: the magnitude of policies that CBO thinks will not be continued and that will not be paid for when they are changed, starting with the doc fix...
UPDATE: OK. Page 69. CBO has marked down the long-run share of tax revenue in the economy over the next 75 years under the alternative scenario by what looks to be 0.8% of GDP, and has given no credit at all for spending restraint via PAYGO and the PPACA...
