A list of problems with federal finances was praised by Republican members of Arkansas’ Congressional Delegation, but the lone Democrat in the delegation said the report failed to provide context about the ever-changing nature of economic conditions and the federal budget.
On Thursday (Feb. 7), Charles Blahous posted at Economics21 a report, “Ten things the latest CBO report tells us about federal finances.” Blahous served in 2001 as the executive director of the bipartisan President’s Commission to Strengthen Social Security, is a Hoover Institution Research Fellow. He also serves as one of two public trustees for Social Security and Medicare programs, and is the author of “Social Security: The Unfinished Work.”
The CBO is the Congressional Budget Office. It was founded in 1974 to provide “independent analyses of budgetary and economic issues to support the Congressional budget process.”
Blahous’ review was of a Feb. 5 CBO report providing an economic outlook for the 2013-2023 period.
Blahous’ report – which was widely distributed in Arkansas by the Arkansas State Chamber of Commerce/Associated Industries of Arkansas – presented a bleak summary of where federal finances are headed. Blahous blames spending related to entitlements, particularly the healthcare reform law.
“In sum, the CBO report paints a disturbing portrait of unsustainable federal debt accumulation driven by spending, and by entitlement spending in particular,” Blahous explained. “To spare our children and grandchildren from unprecedented levels of taxation and/or indebtedness, entitlement reforms that slow these programs’ growth are desperately needed, the sooner the better.”
No. 1 on his list was the growth of federal debt.
“Federal debt is projected to grow faster than the economy can sustain. Federal debt has risen dramatically relative to our economic output. In President Bush’s last full year in office, federal debt was 40.5% of GDP. This year it’s 76.3%. CBO’s latest projections indicate that under current law not only will we fail to bring federal debt back to historical norms, but that it will ultimately rise faster than the economy can sustain,” Blahous wrote.
He finished that alarm with the following note: “It’s probably worse than that. If lawmakers override Medicare physician payment cuts as they have in the past, and if they also extend certain expiring provisions of tax law as well as override the so-called “sequestration” spending cuts, federal debt will grow out of control even faster – reaching 87% of GDP by 2023 as opposed to the 77% shown.”
Other conclusions Blahous pulled from the CBO report included:
• The problem is not a lack of tax revenue;
• Spending is the problem;
• The Social Security spending explosion is already hitting us;
• Going forward, federal health spending is a huge problem;
• Health care reform as enacted in 2010 made the problem worse, not better; and,
• The fiscal strains caused by “Obamacare” may be underestimated.
ARKANSAS GOP RESPONSE
U.S. Sen. John Boozman, R-Ark., said the report is another reminder of the need to quickly address deficit spending.
“The CBO report underscores the need to end the borrow and spend mentality that is so pervasive in Washington today. We can start by doing the most basic job of governing, which is passing a budget. It’s clear that our nation is on a fiscally irresponsible path and it’s time to roll up our sleeves and make some difficult decisions so our children can inherit a strong country. Now is the time to act.”
Claire Burghoff, a spokeswoman for U.S. Rep. Steve Womack, R-Rogers, issued a message on behalf of Womack who was traveling.
“Tuesday’s CBO report was another confirmation of what Congressman Womack has maintained all along: America has a spending problem. He hopes that this report will open the Administration’s eyes and bring the Administration to the table to work for real reforms to address our debt and deficit,” Burghoff noted in a statement to The City Wire.
U.S. Rep. Tom Cotton, R-Dardanelle, is the newest member of the delegation, and has already gained national attention for his brand of conservative fiscal politics. His statement suggested that if left unchecked, the problems will lead to a “diminished America.”
“The country is in the midst of a spending-driven debt crisis, largely due to our financially unstable health and retirement programs. Implementing meaningful reforms to Medicare, Medicaid, and Social Security will protect the current beneficiaries of these important programs and preserve the programs for the future,” Cotton noted.
MOVING IN THE RIGHT DIRECTION
However, Michael Teague, with the office of U.S. Sen. Mark Pryor, D-Ark., said Blahous’ report and the Republican reaction fails to acknowledge that progress is being made.
He said recent budget deals create a path toward $3.6 trillion in debt reduction. Indeed, a Tuesday (Feb. 5) report from the CBO shows that the federal budget deficit in 2013 is on target to come in under $1 trillion for the first time in five years. The CBO report said deficits should also fall in 2014 and 2015, and will be less than 3% of the overall economy for most of the decade.
But Teague said Pryor does agree that much needs to be done.
“Senator Pryor agrees that the federal government needs to develop both a short-term plan that continues the economic recovery and a long-term budget that stabilizes and reduces the debt. He has often said that when it comes to the economy ‘everything must be on the table,’ including reducing spending, raising revenues, and reforming the tax code and entitlements,” Teague explained.
If the CBO report is accurate, everything will need to be on the table. While the short term picture may be improving, the long-term outlook is not positive.
The Feb. 5 CBO 10-year outlook noted: “The federal budget deficit, which shrank as a percentage of GDP for the third year in a row in 2012, will fall again in 2013, if current laws remain the same. At an estimated $845 billion, the 2013 imbalance would be the first deficit in five years below $1 trillion; and at 5.3 percent of GDP, it would be only about half as large, relative to the size of the economy, as the deficit was in 2009. Nevertheless, if the laws that govern taxes and spending do not change, federal debt held by the public will reach 76 percent of GDP by the end of this fiscal year, the largest percentage since 1950.”
Teague said Pryor is also aware that solutions are possible at the federal level.
“Senator Pryor also looks to the past when Congress worked with President Clinton to support four consecutive years of economic policy that generated budget surpluses – an achievement that many said was impossible during the 1993 debate,” Teague wrote.