Citizens for Tax Justice
FOR IMMEDIATE RELEASE
DECEMBER 22, 2005
CONTACT: Citizens for Tax Justice
Bob McIntyre, 202-626-3780
New CBO Report Shows Bleak Fiscal Forecast
WASHINGTON - December 22 - A new report from the Congressional Budget Office paints a bleak picture of the
nation’s fiscal health. The CBO’s biennial Long-Term Budget Outlook report, released on
December 15, shows that under any realistic forecast of federal spending and tax
collection trends, the nation faces budget deficits—and growing federal debt—as far as
the eye can see.
The CBO report looks at six different scenarios for long-term trends in federal spending
and revenues, which include two different tax scenarios and three different spending
scenarios. The scenarios broadly reflect the possible outcomes from the as-yet-unmade
choices facing Congress: whether to make the Bush tax cuts permanent, whether to
continue higher defense spending on the war on terrorism, and whether to contain
recent rapid growth in health care spending.
- Under the “low tax” scenario, the Bush tax cuts are made permanent and
in the long run, federal taxes remain a constant 18.3 percent of Gross
Domestic Product (GDP). Keeping federal taxes at this level through 2050
would require additional tax cuts beyond that already enacted by
Congress and the Bush administration.
- Under the “high tax” scenario, the Bush tax cuts are allowed to expire
after 2010 and federal revenues grow gradually as a share of the
economy, reaching 23.7 percent of GDP by 2050. In this scenario, the
Alternative Minimum Tax (AMT) would remain unchanged, so that millions
more taxpayers would be subject to the AMT than currently pay it.
- On the spending side, the most optimistic “low spending” scenario
assumes that health care spending is dramatically constrained so that
spending does not grow faster than per-capita GDP—a scenario that is
completely at odds with current forecasts. This scenario also assumes that
other areas of mandatory spending will decline slightly as a share of
economy, and that non-defense discretionary spending will remain at its
current levels, growing only at the same rate as inflation.
- The “intermediate spending” scenario allows for some excess growth in
health care spending and assumes that defense spending will remain at its
- The “high-spending” scenario assumes that health care costs will
continue to grow as they have in the past, that defense spending
increases to reflect Bush Administration proposals and the long-term cost
of the war on terrorism, and that all other areas of non-defense
discretionary spending remain flat as a share of GDP.
These two tax scenarios and three spending scenarios yield six possible combinations
of spending and tax policy. The main finding of the CBO report is that of these six
combinations, the only sustainable options are those that are politically infeasible:
- Under the “low tax” scenario, which broadly reflects the policy goals of
the Bush administration and the current Congressional leadership, only
the low-spending scenario will stabilize federal budget deficits in the long
run. Under this low-tax, low-spending scenario, budget deficits persist
through 2050, but remain a small share of GDP over this period. But
enacting the cuts necessary to achieve the “low-spending” goal would
require a stark reversal of current budget policies.
- Extending the Bush tax cuts would lead to enormous budget deficits and
growing debt over the long run under either of the more realistic “intermediate” or “high” spending scenarios.
- Even if the Bush tax cuts are allowed to expire and no AMT reforms are
enacted (the CBO’s “high-tax” scenario), the federal budget would
continue to see growing long-term deficits unless spending is curtailed
dramatically under the “low spending” scenario.
- This “current law” tax scenario could actually yield a long-run budget
surplus under the “low spending” scenario—but neither the tax nor the
spending part of this option seem at all likely to be enacted.
“The CBO report makes it clear that the fiscal path charted by the Republican
leadership is simply unsustainable in the long run,” said CTJ director Robert S.
McIntyre. “The fact that the only option for long-term fiscal balance described in the
CBO report would require both tax hikes and spending cuts far beyond anything
proposed by the current leadership is a testament to the irresponsible path on which
our budget has been led for the past five years.”
The report firmly rejects the notion that our ongoing budget deficits can be reduced
through economic growth due to current and future tax cuts. In a December 15 speech
announcing the report’s release, CBO Director Douglas Holtz-Eakin asserted that it’s
“not possible” that tax-cut-induced economic stimulus could “grow your way out of this
“The CBO’s new forecasts are hardly surprising, since they show a continuation of the
same irresponsible deficit-financing trend we’ve seen throughout this decade,” said
McIntyre. “It would be a welcome surprise, however, if our leaders were to take heed
of the CBO’s dire forecast and enact a responsible deficit-reduction package that puts
our nation on a firmer fiscal footing.”