January 28, 1997
CBO's Latest Estimates Demonstrates Need for Constitutional Amendment
The Congressional Budget Office's (CBO) latest deficit estimate provides dramatic evidence why America needs, and why Congress must pass, a balanced budget constitutional amendment (BBCA). According to CBO [in "The Economic and Budget Outlook: Fiscal Years 1998-2007, released today], the deficit will climb from $107 billion last year to $124 billion this year. And it will not stop there. It will increase to $188 billion in 2002, surpass $200 billion a year later, and reach $278 billion in 2007.
In short, in 10 years without fundamental changes, the deficit will be over two and a half times what it was in 1996. Nor will this situation correct itself. As CBO director June O'Neill stated in her testimony today, "Because the current baseline projections run only through 2007, they do not show the detrimental budgetary effects of the retirement of the baby-boom generation and the continuing growth in per-person health care costs after 2007." [1/28/97]
CBO's latest estimates show that short-term deficit reduction alone is not sufficient, and deficit elimination that remains just a goal -- not a constitutional requirement -- will not occur. Instead it becomes deficit abridgement, temporarily trimmed but never eliminated. Regretfully, Treasury Secretary Rubin made clear in his recent testimony before the Senate Judiciary Committee (on January 17, 1997) that President Clinton is "fully and energetically opposed to a balanced budget amendment." Desite this newly hardened position, the figures supplied by CBO ought to change the president's mind. The deficit needs to be more than just "abridged" into the 21st century, it must be eliminated, if we are to produce the economic growth necessary to secure our future.
The deficit will be $278 billion in 2007 without policy changes -- an amount which is two and a half times the 1996 level. The dynamics of this growth are demonstrated in three basic components: the growth in entitlement spending, the growth in interest payments, and the growth in overall debt. The latest estimates show both where we are headed and from where we have come without a balanced budget amendment to keep us on a responsible course.
CBO's 1/28/97 Baseline Estimate
(In Billions of $'s)
| 96 | 97 | 98 | 99 | 00 | 01 | 02 | 03 | 04 | 05 | 06 | 07 | |
| Deficit | 107 | 124 | 120 | 147 | 171 | 167 | 188 | 202 | 219 | 254 | 266 | 278 |
| M'tory | 859 | 916 | 976 | 1037 | 1110 | 1161 | 1239 | 1310 | 1390 | 1490 | 1571 | 1654 |
| Debt | 3733 | 3869 | 4009 | 4173 | 4358 | 4539 | 4740 | 4954 | 5184 | 5448 | 5723 | 6011 |
| Int. | 241 | 248 | 253 | 261 | 267 | 272 | 279 | 289 | 300 | 312 | 325 | 340 |
Mandatory spending -- that portion of government spending which will automatically take place unless current laws are changed -- will almost double over the next decade and will increase $795 billion overall.
This comes on the heels of doubling over the last decade: "Spending for entitlements and mandatory programs as a whole has more than doubled during the past decade, rising faster than both nominal growth in the economy and the rate of inflation." [CBO report, p. 39]
It is fundamental that growth in spending which exceeds the rate of the economy's growth is not sustainable. When such growth is occuring in the largest area of federal spending (over half of currrent federal spending), the problem is critical.
Federal debt (publicly held debt) will explode. It will increase by more than $2.3 trillion over the next decade -- over 60 percent above what it was last year. That increase in debt is almost 50 percent higher than the entire federal budget's spending this year.
Interest spending will increase as a result of this uncontrolled growth and borrowing. In fact, in 10 years it will be as large ($340 billion) as the amount we spend on Social Security -- "the largest federal program by far" [CBO, p. 37].
The crush of future debt should set off the alarm bells. Because CBO's deficit estimate is lower than last year's, some want to see a silver lining within the darkening storm clouds. There is no reason to. CBO numbers clearly show that any deficit decline has not resulted from fundamental policy changes. Yet, it is policy changes that must take place if future fiscal calamity is to be avoided. CBO's estimate again underscores the need for a balanced budget amendment: Fundamental policy changes must take place and they have not thus far.
CBO lists in the first paragraph of its latest estimate the "four major factors" accounting for its lower deficit estimate since last May: "Revised estimates of the growth of spending for Medicare and Medicaid; the enactment of welfare reform legislation; higher projected revenues, particularly in the near term; and the lower debt-service costs" resulting from the lower deficit estimate [CBO report, p. xiii]. If this seems like reason for optimism, think again.
Of the "four major factors," only one was due to a policy change -- welfare reform: "The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, otherwise known as welfare reform, had the greatest budgetary impact of any piece of legislation passed by the 104th Congress" [CBO report, p. 21].
Recall that President Clinton vetoed welfare reform twice and only signed this legislation under the duress of seeking reelection.
Furthermore, Clinton has already stated his intention to undo parts of welfare reform, provisions which we may see in his budget next week. In short, the proposal with "the greatest budgetary impact of any piece of legislation passed by the 104th Congress" is already being targeted. "Clinton administration officials promise that if the president is reelected he will use his line-item veto authority for leverage to win changes in the [welfare] law" [Los Angeles Times, 8/23/96].
President Clinton's ability to undo deficit elimination should not be underestimated. CBO states: "Just over a year ago, the Congress passed a bill, the Balanced Budget Act of 1995, that CBO estimated would have led to a balanced budget in 2002. . . . The President vetoed that legislation, however. . ." [CBO report, p. xv].
Three of the other remaining "four major factors" are either temporary or merely assumptions. That means, there is no certainty they will turn out as planned.
"Revised estimates of the growth of spending for Medicare and Medicaid:" Estimates are in this case built on nothing more than assumptions -- not policy change that locks savings into place. If spending in these programs resumes the course it followed prior to this latest estimate, then these figures will increase accordingly.
"Higher projected revenues, particularly in the near term:" As the next section makes clear, economic growth is slowing -- the prospect of higher revenues financing Washington out of fiscal irresponsibility is unlikely.
"Lower debt-service costs:" These costs are merely the result of the three preceding factors. If they change, debt-service costs change -- it is entirely dependent on the overall fiscal outcomes.
If final evidence is needed of why a balanced budget amendment is vital, we need look no further than CBO's estimate of America's future economic performance. The already sub-par economy of the last couple of years is expected to continue and then deteriorate. This removes the possibility that we can further reduce the deficit by raising taxes. With the economy already weak and expected to weaken further, additional taxes are simply unaffordable, and, rather than solving the deficit problem (let alone eliminating it), they are likely to exacerbate it. Instead, the solution must come from the spending side. Yet, this is precisely what President Clinton has resisted.
CBO's estimate makes explicitly clear that deficit elimination will be very beneficial to America's economic performance: "Any fears that deficit reduction would rattle the economy have been unrealized" [CBO report, p. 9].
In fact, the economy is expected to deteriorate at the same time that the deficit is projected to rise.
Real GDP growth is projected to remain in 1997 at the lackluster 2.3 percent of 1996. After that it is expected to fall: "From 1998 through 2007, the economy is projected to average 2 percent growth" [CBO report, p. 1].
Within a decade, growth is projected to fall below 2 percent -- to 1.9 percent in 2006.
That pace is far from the growth America has come to expect: "That pace is considerably slower than growth in the past -- indeed, slower than even the 3 percent average rate of growth posted from 1981 through 1990" [CBO report, p. 14].
It bears pointing out that the 3 percent of 1981-90 included a recession -- a factor not assumed by CBO for the future. If such a scenario were included within the next four years, the deficit and all other assumptions would be far worse.
To coincide with this slow growth, unemployment is expected to increase -- from a 5.3-percent rate in each of the next four years, reaching 6 percent by 2001.
In three fundamental ways, the CBO numbers underscore the need for the BBCA: increasing deficits, a slowing economy, and the lack of will to make the policy changes necessary to reverse these trends. If the current level of deficits, debt, and spending were not enough, if the current slow economy were not sufficient, and if President Clinton's veto of a balanced budget and insistence on reversing savings from the largest savings of the last Congress were not adequate evidence -- then CBO's estimate of the future should be.
CBO shows simply abridging the deficit to the 21st century by slicing a few pages is not enough. The story needs a new ending, not more spending and more debt for America. Instead we must close the book on the deficit once and for all.