- The Washington Times - Tuesday, January 31, 2012

After years of delaying big decisions, the federal government faces daunting budget challenges, according to Congress‘ chief scorekeeper, which said Tuesday that a churlish economy, low tax rates, and growing spending on Social Security and health care are creating a volatile mixture.

Under the best of cases, that means a fourth straight year of trillion-dollar deficits, covering all of President Obama’s first term in office, and debt nearing a staggering $20 trillion by the end of this decade.

But if Congress continues to extend tax cuts and higher rates of spending, as it has done for the past two years, the situation will be much worse — a total of $10 trillion more in deficits each year for the next decade.

The bad news doesn’t stop there.

“Beyond the coming decade, the fiscal outlook is even more worrisome,” the Congressional Budget Office said in its report. “Although long-term budget projections are highly uncertain, the aging of the population and rising costs for health care would almost certainly push federal spending up sharply relative to GDP after 2022 if current laws remained in effect. Federal revenues also would continue to increase relative to GDP under current law, reaching significantly higher percentages of GDP than at any time in the nation’s history.”

For the current year, fiscal 2012, the CBO said the budget deficit will reach $1.1 trillion — down slightly from the past three record years, but still higher than any other president has ever recorded.

Among the other worrisome signs is that Social Security’s disability insurance trust fund and Medicare’s hospital insurance trust fund will be exhausted sometime during the next decade.

The CBO said the Troubled Asset Relief Program, or TARP, which had been a net positive for the government in 2010 and 2011, will become a net drag. The report said TARP costs will rise to $23 billion this year.

Watchdogs hoped the gloomy news would break a years-long deadlock that has given Democrats higher spending and Republicans lower tax rates, with sharp consequences for the budget.

But there was little sign Tuesday that either side was prepared to relent.

Democrats saw slightly lower unemployment rates and deficits as signs that their policies over the past three years have worked.

“It is clear that part of the progress we’ve made so far is due to the pro-growth policies championed by congressional Democrats and President Obama, and now is not the time to turn back the clock or return to the policies that got us into this mess in the first place,” said Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee.

Republicans argue that the $831 billion stimulus did little to relieve the economic downturn and say the answer is to tighten belts on the spending side, though they argue against increasing taxes to further close the deficit.

“No nation can spend, tax, bail out or borrow its way back to prosperity,” said Rep. Jeb Hensarling of Texas, chairman of the House Republican Conference.

The CBO released two forecasts: One takes account of current laws, which call for the Bush-Obama tax cuts to expire and for spending to be cut dramatically in future years. But with Congress repeatedly rejecting those options, the CBO released a more likely forecast that predicts trillion-dollar deficits for the next decade.

Under either scenario, the CBO said discretionary spending — the money that goes to basic functions such as law enforcement, education and the like — is slated to drop to a lower percentage of gross domestic product than at any other time in the past five decades. But entitlement programs, which are on autopilot, will more than make up for that, increasing from 13.3 percent of the economy in 2013 to 14.3 percent in 2022.

Also, interest payments on the debt will absorb an ever-larger part of the budget.

For the past three years, the government has collected taxes at a rate of about 15 percent of the economy while spending at a rate of about 24 percent of the economy. That gap explains the staggering deficits.

For 2012, those numbers will improve to 16 percent of GDP in taxes, while spending will account for 23 percent of GDP.

The post-World War II average has been about 18 percent in taxes and 20 percent in spending.

Mr. Obama will submit his 2013 budget in February, but he signaled in his State of the Union address that much of it will depend on tax increases for those with the highest incomes. He has said he wants to impose a “Buffett Rule” — named after billionaire Warren Buffett — that would set an alternative minimum tax of 30 percent on incomes for the wealthiest Americans.

Congress is still struggling to deal with the original alternative minimum tax, created in the late 1960s to make sure wealthy Americans paid their share.

At the time, lawmakers failed to index the income level at which the tax hit, meaning that the higher tax affected more Americans every year. For the past two decades, Congress has had to enact patches that prevent an ever-wider swath of taxpayers from being affected.

The CBO report says continued patches to the alternative minimum tax is one reason why the budget outlook is so grim. Over the next 10 years, Congress will forgo more than $800 billion in revenue if it adjusts that tax rate — about equal to the size of the entire stimulus package Mr. Obama and Democrats enacted in 2009.

Congress and the president did make some strides last year toward a better budget.

They cut discretionary spending, putting it on a path that the CBO said would lead to levels, measured as a percentage of the economy, that haven’t been seen in five decades. They also implemented a structure to cut still more.

The CBO also warned that progress would be undermined if lawmakers undo automatic cuts called resulting from a supercommittee’s failure last year to suggest more than $1.2 trillion in other savings.

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