t the risk of sounding like Chicken Little, the sky isn't looking too firmly placed in the firmament, even if it hasn't yet fallen. That's the conclusion emerging from the Congressional Budget Office's newly released "Economic and Budget Outlook" for fiscal years 1997 to 2006. CBO's 10-year look at fiscal trends is gloomy enough, but the longer term outlook is downright alarming, and in both the short- and the long-run the implication is for tighter and tighter operating budgets for federal agencies.
CBO says that if revenue and entitlements policies remain unchanged, and if discretionary spending grows at the rate of inflation, federal deficits will begin to grow steadily in 1997, reaching to more than $400 billion in 2006. This is not a wholly unlikely scenario; indeed it's not far from what has been happening during the past decade and would reflect the lack of consensus for change that has afflicted the government during the 104th Congress. Another path CBO examines assumes that discretionary spending holds steady at 1996 levels, with the freeze reducing the actual purchasing power of discretionary appropriations by more than 25 percent over the 10-year period. Here, deficits level off, but in the range of $180 billion. (See Chart I.)
President Clinton has proposed a fiscal path that would lead toward balance in 2002, though CBO says his policies actually would produce an $81 billion deficit that year. But these policies have yet to be enacted, and there's some doubt the Administration even intends to pursue them in future years. During recent testimony before the Senate appropriations subcommittee headed by Sen. Christopher Bond, R-Mo., the heads of NASA and the Veterans Affairs Department said quite bluntly that they didn't intend to live within the out-year ceilings projected in the Clinton budget. They further claimed the White House was quite aware, and approving, of their intentions. While on the surface this might be seen as good news for these two agencies, it would imply increasingly large deficits. And there can be little doubt that pressure to erase them will continue in a move toward budget balance.
CBO says such a move would be highly useful, and the earlier the better, in light of much worse budget deficit problems looming in the years after 2010. Fast-growing claims on Social Security, Medicare and other entitlement programs by an aging population will send spending zooming out of sight unless changes in these programs are made. Just to keep deficits from an unsustainable pattern of growing faster than the economy, Congress would have to increase revenues by 15 percent to 25 percent, CBO says. Absent such changes, and with discretionary spending growing with inflation, the national debt, measured against the size of the economy, would quickly catch up with and then exceed the peak levels reached during World War II. (See Chart II.)
Thus, deficit politics, already pinching agency budgets, almost certainly will exert a tighter and tighter squeeze as time goes on.
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