TG

The Guarantor of Choice SM

TG's Legislative Report

January 6, 2004

Congressional Budget Office Forecasts Future Budget Outlook and Alternatives

Keeping the federal budget at or near balance over the next 50 years could require painful tax increases, spending cuts or both, the nonpartisan Congressional Budget Office (CBO) says.

In its year-ending, December 2003 Long Term Budget Outlook, the CBO offers possible combinations of tax and spending changes, all of which would leave lawmakers choosing among politically unpalatable options.

Even so, some options would still leave the government in fiscal trouble. Yet, failing to act would drive the accumulated federal debt to unsustainable levels, according to the study.

"Taken to the extreme, such a path could result in an economic crisis," including the possibilities that foreign investors would pull out, the dollar's value plunge, interest rates and prices soar and stock markets collapse.

"The longer that lawmakers delay acting to counter an unsustainable budgetary situation, the larger the spending cuts or tax increases will eventually have to be," the 60-page study warned.

The big problem facing the government is the impending retirement of the baby boom generation, whose 76 million members will start later this decade relying on Social Security and Medicare and increase their use of Medicaid.

The budgets for those entitlement benefits are also growing as medical costs continue to increase. The three programs provide pensions and medical insurance for the elderly, disabled and poor.

According to the report, Social Security is so large, and Medicare and Medicaid are expanding so rapidly, that limiting the growth of defense, education and other spending that Congress controls would not be enough for sound budget policy.

"Substantial reductions in the projected growth of spending or a sizable increase in taxes as a share of the economy — or both — will probably be necessary to provide a significant likelihood of fiscal stability in the coming decades," the report said.

The study compared current and future spending and revenues to the size of the U.S. economy of gross Domestic Product (GDP), now about $11 trillion. Economists consider the resulting percentage a useful way to measure the federal budget over time, because it illustrates how affordable particular programs or policies might be.

In the study, the budget office offered six hypothetical scenarios for restraining spending and raising taxes through 2050.

Highlighting the seriousness of the long-range budget picture, even the scenarios that let trillions of dollars in tax cuts enacted under President Bush will expire, which would bring in piles of new revenue, would mean that "fiscal stability is not assured."

Of the six scenarios, three offered the chance of balanced budgets in 50 years.

But of the three, two used the politically unlikely assumption that the Bush tax reductions would expire. The third incorporated the improbable scenario that spending for Medicare and Medicaid would not keep pace with health-care costs, that spending for other benefits would shrink compared to the economy's size, and that other domestic programs would grow only with inflation.

In another scenario, revenues would rise from their current 16.2 percent of the economy to their historic 18.4 percent average, and spending for all programs but Social Security, Medicare and Medicaid would be less than half their current 9.6 percent of the economy. But "to prevent an indefinite spiraling of federal debt," spending on those three benefit programs would grow by no more than 0.5 percent annually over inflation, the report said.

While the recommendations or suggestions in the report focused on controlling future costs of these three large programs, all of the scenarios also included halving the historical percentage of the GDP that nondefense discretionary spending comprises from the 20 year average of 3.6 percent to 1.8 percent by 2008 and keeping it there. Expenditures under this category includes appropriations for federal student financial aid programs and student loans.

The full report can be accessed at www.cbo.gov.

  

Joint Interim Committee on Higher Education

Future hearing dates for the Committee are January 20th, February 17th, March 16th, April 20th, and May 18th.

For additional information about the Joint Committee go to http://www.house.state.tx.us/committees/835.htm.

  

Sunset Advisory Commission Review of TG

The Sunset Advisory Commission review of TG will commence with a staff review beginning in April 2004. The schedule calls for the staff to complete its report to the Commission by Mid October 2004. The Commission will convene in a public hearing in Austin to receive the staff's report, TG's response, and public testimony in mid November 2004. The Commission will then adopt the final staff report in mid December 2004. The Regular Session of the 79th Texas Legislature, which convenes on January 11, 2005 for 140 days, will consider legislation to "reauthorize TG for another 12 years."

Anyone wishing to provide input to the Sunset staff concerning TG, or TG's Self Evaluation Report (SER), can do so now by completing the Feedback Form at http://www.sunset.state.tx.us/question.htm.

TG's SER can be accessed at the same website at http://www.sunset.state.tx.us/79threports/tgsl/ser.pdf.

  

Key Dates for the Second Session of the 108th Congress — 2004

  • January 20 — The Second Session convenes
  • February 2 — President submits the Administration's FY2005 budget proposals to Congress
  • February 16-22 — Presidents' Day recess
  • February 23 — Congress reconvenes
  • March 15-March 19 — Congress not in session
  • March 22 — Congress reconvenes
  • April 12-April 16 — Easter recess
  • April 15 — Deadline for passage of FY2005 congressional budget resolution
  • April 19 — Congress reconvenes
  • May 15 to June 30 — House and Senate may begin considering and passing the thirteen FY2005 appropriations bills
  • May 24-31 — Memorial Day recess
  • June 1 — Congress reconvenes
  • June 28-July 5 — Independence Day recess
  • July 6 — Congress reconvenes
  • July 26-September 6 — August/Labor Day recess
  • September 7 — Congress reconvenes
  • September-Adjournment — House and Senate reconcile and pass the thirteen FY2005 appropriations bills
  • October 1 — Target adjournment for the 108th Congress

  

For more information, contact:

TG Congressional and Legislative Relations
(512) 219-4503
P.O. Box 83100
Round Rock, TX 78683-3100

 

© 2008 Texas Guaranteed Student Loan Corporation