CONCORD COALITION APPLAUDS PAYGO IN BUDGET RESOLUTION BUT
WARNS THAT PROJECTED SURPLUS REQUIRES HARD CHOICES

WASHINGTON -- The Concord Coalition said today that the Congressional Budget Resolution to be voted on in the House and Senate this week would help restore fiscal discipline by applying a deficit neutral "pay-as-you-go" (paygo) standard to all entitlement expansion and tax cut legislation and by creating a "trigger" in the House to protect projected surpluses. Concord expressed concern, however, that the revenue numbers in the budget plan assume a waiver of paygo for certain tax cut extensions. This presumed waiver, along with the absence of cost cutting entitlement reform and an assumed slowing of discretionary spending growth in the outyears, makes the goal of a $41 billion surplus in 2012 seem optimistic.

"Budget rules are only as strong as the political will to apply them. A close look at the pent-up spending and tax cut demands in the budget resolution's 23 reserve funds shows how important strict adherence to paygo will be for the desired surplus to result. In this budget, paygo acts as a fiscal levee against a flood of red ink. If that levee breaks, there is little chance of reducing the deficit, let alone of producing a surplus," said Concord Coalition executive director Robert L. Bixby.

Under the budget resolution, revenues and outlays would balance at about 19 percent of GDP in 2012. That is a slightly lower number than this year's projected level of outlays (20.2) although the budget resolution does not require any major cost cutting initiatives. Revenues by 2012 would be slightly higher than projected revenues this year (18.6) although the budget resolution does not instruct the House Ways and Means or Senate Finance Committees to raise taxes. The revenue increase in the budget resolution is the result of current law "sunsets" that were included when these tax cuts were originally enacted.

Concord noted the following positive aspects of the budget resolution:

• It establishes a balanced budget goal.
• There are no expansions of mandatory spending programs. All such initiatives are constrained by deficit neutral reverse funds that require offsets to pay for them. It is a particularly positive sign that the budget resolution applies this restriction to a number of high priority items for the Democratic leadership -- such as expansion of the SCHIP program and reauthorization of the farm program.
• Despite the presumed waiver of paygo for certain tax cut extensions, the budget resolution does not exempt any tax cut legislation from the rule.
• Discretionary spending would fall as a percentage of the economy, provided that Congress sticks with its targeted spending levels. 

There are other aspects of the plan that Concord finds disappointing. Specifically, it:

• Does not budget for likely war costs. Like the President's budget, the budget resolution assumes just $50 billion for the cost of military operations in Iraq and Afghanistan in 2009 and nothing in 2010 through 2012.
• Does not provide a meaningful spending reconciliation bill to achieve savings in entitlement programs. The explosion in health care and retirement benefits that looms on the horizon is the single biggest threat to our nation's fiscal health.   Including entitlement savings as a regular part of the annual budget process is an important step in addressing our long-term challenges. Even if paygo is strictly applied to expansions of mandatory programs, this would still leave spending growth under current law on an unsustainable path. However, the reconciliation instruction included in this budget appears to be aimed at smoothing the way for controversial policy initiatives, not at deficit reduction. 
• Does not provide for discretionary spending caps beyond fiscal year 2008. In projecting a balanced budget in 2012, the budget resolution assumes much lower increases in non-defense discretionary spending after 2008, including increases lower than inflation from 2010-2012. Overall, the budget projects a decline in non-defense discretionary spending as a percent of GDP in every year after 2008.  Without caps, the spending restraint assumed in the outyears of the budget resolution will be much harder to achieve.
• Does not assume revenue numbers that are consistent with strict application of paygo. Under current law, the tax cuts enacted in 2001 and 2003 are scheduled to expire on December 31, 2010. Moreover, current law does not assume further relief from the Alternative Minimum Tax. Thus, under paygo, the revenue that comes from these provisions would be assumed in the budget resolution. However, the budget resolution assumes a revenue number that is $175 billion below what would be collected if paygo applied. This number, in effect, assumes a waiver of paygo to provide for extending certain tax cuts.

Revenue and Outlays as a Percentage of GDP
In the FY08 Budget Conference Report