CBO's Budget Outlook

Just as the Republican National Convention was celebrating presidential candidate Bob Dole's conversion to the tax-cutting cause, a little rain was dumped on the GOP parade by budget analysts in Washigton.

A somber look at the nation's fiscal trends was sounded once again by the nonpartisan Congressional Budget Office as it released its 17th annual report on "Reducing the Deficit: Spending and Revenue Options". The report examines more than 200 options, including two that would cut the value of federal pension benefits for civil service retirees.

In no uncertain terms, the CBO report discounts the longer-term importance of balancing the federal budget by 2002, the fiscal objective most commonly espoused by both political parties at present. That goal is simply not enough to tame the deficit disease that will afflict the nation as the baby boom generation retires, CBO concludes.

"Unless permanent changes are made to relieve the long-term pressures on the deficit that arise with the aging of the baby-boom generation, simply balancing the budget by 2002 with one-time changes will not prevent the skyrocketing levels of debt that will occur in the early to middle decades of the next century," the report says. It adds that "serious efforts to reduce the deficit significantly will have to include substantial policy changes that go well behond merely continuing to restrain spending for annually appropriated programs, or so-called discretionary spending."

About half of discretionary spending is for national defense. The remainder funds housing, agriculture, education, environmental protection, law enforcement, space exploration, research and development, international assistance and other activities. Discretionary spending has been shrinking as a share of the federal budget, and now accounts for only about a third of the total.

The other two thirds comprises so-called "mandatory" spending, including interest on the national debt and the big benefit programs such as Social Security, Medicare, Medicaid and federal employee retirement. It is here that the problem lies. But there's little evidence that the Republicans meeting in San Diego have any appetite for proposing solutions to the entitlement problem at the moment. That's a posture that will doubtless be imitated by the Democrats when they meet in convention in Chicago later this month.

One of the entitlement reform options CBO covers would reduce federal retirement benefits directly. Another would do so less directly, by cutting back on cost-of-living adjustments in all non-means-tested benefit programs.

The 500-page CBO report is available in printed form from the agency's publications office: 202-226-2809. It will be online within the next few days as well at: gopher.cbo.gov:7100.