Testimony of Robert Greenstein on Economic Security and Long-term Budget Projections
I appreciate the invitation to appear before you today. I direct the Center on Budget and Policy Priorities, a nonprofit policy institute that conducts research and analysis on fiscal policy matters, as well as on programs and policies for low-income families and individuals.
Last winter, the Center was asked by the Carnegie Roundtable on Economic Security to review all long-term budget projections that had been conducted, assess their strengths and weaknesses, examine the latest data, and construct new long-term projections. While we presented initial results to the Roundtable in May, this is a task we have worked on for close to a year. As part of this effort, we have shared our methodology and sought comments and recommendations from many of the nation's leading budget experts, including a number of former directors of the Congressional Budget Office. We released yesterday the analysis and projections that are the product of this enterprise, and I am pleased to present them to you today. These new budget projections extend through 2050.
The projections, based heavily on data and estimates from the Congressional Budget Office, are deeply disquieting. They show that the nation's budget policies are unsustainable. Deficits and debt will grow to unprecedented and dangerous levels if policy changes are not made.
The new projections also shed light on the sources of these problems and on the types of changes that would be needed to address them responsibly. Our principal findings are the following:
The main sources of rising expenditures are rising health care costs (throughout the U.S. health care system) and demographic changes, which together will drive up spending for the "big three" domestic programs -- Medicare, Medicaid, and Social Security.
Increases in health care costs per beneficiary in Medicare and Medicaid essentially mirror increases in costs per beneficiary in the overall U.S. health care system. As Comptroller General David Walker has pointed out, a solution to the long-term fiscal problem will require not only difficult choices to reduce programs and increase revenues, but also fundamental changes in the entire U.S. health care system.
Tax policy decisions that Congress will face in coming years will have a substantial impact on the magnitude of the long-term problem. If Congress lets recent tax cuts expire by 2010 as scheduled or extends them (in whole or in part) but offsets the costs, the size of the fiscal problem through 2050 will shrink by 60 percent. This is because the resulting deficit reduction would begin in the next few years and have a steadily increasing impact on federal interest payments with each passing year. As a result, it would reduce long-term deficits by increasing amounts over time. Even so, the budget would remain on an unsustainable fiscal path.
Federal programs other than Medicare, Medicaid, and Social Security -- including entitlement programs other than the "big three" -- are not expected to grow rapidly. To the contrary, these programs will shrink as a share of the economy and thus will consume a smaller share of the nation's resources in 2050 than they do today. These programs thus do not contribute to the long-term problem.