CBO Projects Lower Living Standards If Current Laws Are Not Modified

By Sarah Mamula - Talk Radio News Service

Congressional Budget Office (CBO) Director Douglas W. Elmendorf announced Wednesday that the CBO’s most recent projections offer a bleak future for the nation’s standard of living and it’s federal debt.

According to a report released by the CBO, federal debt will hit 62% of the United States’ GDP by the end of 2010, a percentage not reached since the aftermath of WWII. If current laws are not modified, the CBO projects that federal spending on healthcare programs will grow from about 5% of GDP today, to nearly 10% by 2035.

“Reaching agreement on longer term reductions in spending or increases in taxes or some combination as quickly as possible would support the economic recovery,” said Elmendorf.

The CBO Director said there are two scenarios that will work to prevent such projections from becoming a harsh reality. The “extended-baseline scenario” would implement a steadily increasing average tax rate. In addition, rising tax rates and provisions in the newly passed healthcare bill, the CBO projects that revenue would grow to 23% of GDP by 2035. 

Under an “alternative fiscal scenario,” major changes in current legislation would have to take place. According to the CBO, under this plan “most of the provisions of the 2001 and 2003 tax cuts would be extended, 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.” 

Dodging giving recommendations to Congress, Elmendorf said that “ultimately, if the debt grows unchecked… it means declines in people’s standards of living.”

Health Care Reform Will Reduce The Deficit, Claims Former CBO Official

According to a former official from the Congressional Budget Office (CBO), the health care reform legislation signed into law by President Obama last week will not increase the nation's deficit, despite GOP warnings to the contrary.

"CBO estimates that health reform will reduce the deficit by $143 billion over its first 10 years," Paul Van De Water, a former CBO Assistant Director for Budget Analysis, told reporters Monday in a conference call held by the Center for Budget and Policy Priorities.

De Water rejected Republican claims that Congressional Democrats manipulated the legislation to show short-term deficit reduction followed by an increase.

"When CBO looks at the legislation as a whole, it finds that health reform reduces the deficit by far more in its second 10 years than its first 10 years," De Water explained. "CBO projects the bill will continue to reduce the deficit in later years as well."

Sen. Schumer Discusses CBO Scoring For Health Care Bill

Sen. Charles Schumer (D-N.Y.) discusses the Congressional Budget Office's review of the Senate's health care reform bill.

Long term health care budget likened to a dysfunctional relationship

The long term budget outlook for slowing the growth of health care costs was discussed at a hearing before the U.S. Senate Committee on Finance. Panelist Dr. Peter R. Orszag, Director of the Congressional Budget Office (CBO), gave the analogy of a dysfunctional relationship to illustrate the unsustainable state of the federal budget. Orszag said that, like such a relationship, there was no telling how long the budget would last but the end was bound to be messy.

Panelist Mr. Gene Dodaro, Acting Comptroller General of the Government Accountability Office (GAO) cautioned that Social Security cash surplus would start declining in 2011. Dodaro said that this would force increased borrowing from the public, reduced spending or increased revenue. Dodaro also said that American standard of living would be affected in terms of how the types of services would be funded.

Chairman Max Baucus (D-Mont.) noted that Congress would be able to help more if given more data regarding health care costs and guidelines. Orszag agreed and discussed ways to constrain costs without adversely affecting health benefits. Orszag recommended increasing the salience of health costs and improving health care efficiency. He said that might result in a change in cost-consciousness which would shift demand. Orszag also recommended generating more information about effectiveness and changing incentives such that people pay for ‘better care and not just more care’. Lastly, Orszag stressed the importance of adopting measures that promote healthier living such as increasing cigarette tax to discourage smoking.