• Congressional Budget Office Projections: No Change in Bleak, Long-Term Fiscal Outlook
• Economy and Jobs Watch: Continuing Bad News for Americans

The August rumor mill is in full swing in Washington, DC, and the latest news is that Senate Finance Committee Chairman Chuck Grassley (R-IA) is considering finding the required $10 billion in cuts from programs under his jurisdiction from outside the Medicaid program.

The Finance committee must create a reconciliation bill cutting $10 billion from mandatory programs and send it to the Budget committe by September 16. This is one of the main parts of the overall $34.7 billion reconciliation bill cutting entitlement programs agreed to earlier this year in the budget resolution.

The reconciliation instructions do not specify to which programs the cuts must be made, but it was generally understood that Medicaid would receive the majority if not all of the $10 billion in cuts. Yet two Republicans on the committee - Senators Gordon Smith (OR) and Olympia Snowe (ME) - are promoting a plan to reduce the Medicaid cuts by as much as half and making the rest of the required cuts to the Medicare program. Some observers are worried such an action would open a pandora's box - allowing both Democrats and Republicans to offer amendments targeting the controversial Medicare prescription drug benefit.

The Government Accountability Office released a updated response to the Senate Finance Committee after an April hearing on the tax gap. The report released by GAO concerns the Internal Revenue Services' strategic approach to reducing the tax gap.

The most recent IRS calculations put the tax gap - or the difference between how much should be paid in taxes and how much actually is - betwen $312 and $353 billion per year. The majority of this comes from underreporting of taxes owed by individuals and corporations. Interestingly enough, the current projections for the FY05 budget deficit fall smack in the middle of that range, at $331 billion. While there are many more problems with growing and persistent long-term budget deficits than closing the tax gap could fix, it is nonetheless an important problem needing to be addressed by Congress and the IRS.

Following the Congressional Budget Office release of an updated budget and economic outlook this past Monday, both the Center on Budget and Policy Priorities and the Senate Budget Committee Democratic Staff released their own analyses of the CBO update.

While both CBPP and the Senate budget staff believe the projections are improvements on the White House's mid-year update, they also believe the estimates are too optimistic. In particular, the two reports stress the long-term budget picture has not improved significantly and also that it will drastically worsen if the tax cuts from 2001 and 2003 are extended.

About a month after the White House released its highly misleading and overly optimistic budget projections, the Congressional Budget Office (CBO) released their projections today.

The CBO report projects a $331 billion deficit for FY05, a $33 billion reduction since they released an initial estimate earlier this year in March. CBO also has increased their estimate of the total deficits over the next ten years by more than $1.1 trillion to $2.1 trillion. These estimates are much more worrisome than OMB projections released last month as CBO and OMB differ over the ten-year deficits from 2006 - 2015 by more than $600 billion.

Unlike the OMB numbers, CBO finds very little reason to be optimistic about the future health of the federal government. They write, "Although the deficit for 2005 is lower than previously expected, the fiscal outlook for the coming decade remains about the same as what CBO described in March." In March, CBO described a very dark future if current policies are continued.

This CBO report casts further doubt on administration claims that their economic policies are working to spur strong economic growth and will continue to shrink deficits. CBO has confirmed what many private analysts have reported - that the recent jump in federal revenues are due to short-term and temporary factors that are unsustainable and that over the long-term, the country still faces many large and difficult fiscal challenges. CBO concludes, "Over the long-term, then, growing resource demands...will exert pressure on the budget that economic growth alone will not eliminate."

Most strikingly, the CBO report states that if the tax cuts from the administration's first term are extended (with the exception of policies related to the alternative minimum tax), as President Bush has been strongly advocating, deficits over the next decade would increase $1.6 trillion on top of their current projections.

The Senate Budget Committee's most senior Democrat Kent Conrad (D-ND) believes the nation needs a "serious fiscal wake-up call" if we are to correct the long-term budget shortfalls that "threaten our economic security." It's time for President Bush to be straight-forward with the American people and begin an honest conversation about adopting alternative policies that will return the country to a sound and sustainable fiscal foundation.

Below are the latest budget and tax articles from the OMB Watcher:

• Estate Tax Vote Slated for September -- Take Action Now
  
• Office of Management and Budget Continues to Manipulate Budget Projections

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Posted by Adam Hughes, 09:41:54 AM

Monday, August 08, 2005

Friday, August 05, 2005