Stuck in the Deficit Ditch

Projections released Friday by the Obama administration show that the nation’s finances remain in a deep deficit ditch. This was hardly “news,” says Concord Executive Director Bob Bixby, but it served as a pointed reminder that much hard work needs to be done to get us back on the road to fiscal sustainability.

The Mid-Session Review (MSR) optimistically assumes a swift economic recovery and a three-year freeze on non-security appropriations. Yet it still concedes that the nation’s current fiscal path threatens its future prosperity.

This year’s deficit is now projected to equal 10 percent of the economy (GDP), down from 10.6 in the February budget.  But Bixby argues in a blog post that this is hardly cause for celebration, and notes that the 10-year outlook is virtually unchanged. The projected deficit never gets down to a sustainable level of roughly 3 percent of GDP. Interest payments would rise from $185 billion this year to $831 billion in 2020 — roughly one-third of all individual income taxes.

Despite enormous near-term deficits, Bixby says, the key message of the MSR is that our long-term structural deficit remains our biggest fiscal challenge. It is clear that improving the long-term outlook will require substantial changes in Medicare, Social Security, the defense budget, tax policies and other key areas.

External links:
Mid-Session Review, U.S. Office of Management and Budget.