Washington, D.C. - The following is a statement by Steve Bell, Senior Director of the Economic Policy Project at the Bipartisan Policy Center:
“Despite the fiscal dramas of the past year, today’s Congressional Budget Office (CBO) Budget and Economic Outlook shows that policymakers in Washington have made little fundamental progress toward spurring economic growth or controlling the nation’s unsustainable debt trajectory.
‘We hope that President Obama’s alternative to the sequester, released this afternoon, will spark serious discussions about a major, long-term debt stabilization package that can be enacted this year. Other plans have been proposed in the House and Senate, indicating that avoiding the sequester remains a dominant concern among policymakers and budget analysts.
“The CBO’s Alternative Fiscal Scenario (AFS) from its 2012 report has thus far been extremely accurate. Virtually all of the tax cuts that were set to end under current law were extended by 2012 congressional action. The sequester savings of approximately $1.2 trillion during the next decade remain problematic. Cuts to Medicare providers were postponed. The Alternative Minimum Tax (AMT) was permanently patched. CBO’s political prognostication was vindicated, unfortunately, by policymakers’ unwillingness to seriously face up to our fiscal problems.
“In addition, virtually no changes in entitlement program spending or tax reform occurred. The additional revenue raised is a drop in the bucket on our long-term debt path. Finally, while extremely beneficial at the moment, the abnormally low interest rates experienced by the United States continue to hide the enormous interest payments that will eventually occur when interest rates revert to historical post-World War II levels.
“Not only have policymakers failed to confront the debt trajectory, but fiscal policy has also been a drag on economic growth, most prominently through the expiration of the 2-percent payroll tax cut that had been in place since 2011.
“In this year’s assessment, the CBO report shows that a plausible current policy baseline would project federal debt held by the public to climb by $8.4 trillion over the next decade to 83% of gross domestic product (GDP). The debt burden worsens in the decade after that, as demographics and health care cost inflation continue to drive up federal spending in health care and retirement programs. Without reining in spending and raising new revenue through tax reform, public debt will eventually begin to crowd out the private investment our economy needs.
“The president and Congress missed several opportunities in the last two years to make real progress toward stabilizing our national debt as a percentage of GDP: the president’s Fiscal Commission recommendations; our own Domenici-Rivlin Debt Reduction Task Force proposals of 2010 and 2012; the so-called Biden-Cantor talks; other plans proposed by serious budget experts; and most recently, failure to use the opportunity offered by negotiations surrounding the ‘fiscal cliff’ to achieve any plan that fundamentally alters the debt dilemma.
“We hope that CBO’s estimates today prompt more serious responses by federal elected officials during 2013.”