Government faces big long-term spending hurdle

Congressional Budget Office Director Douglas Holtz-Eakin told the House Budget Committee and a group of economists Thursday that the government faces huge spending demands over the long term, particularly due to entitlement programs such as the cost of a new Medicare prescription drug benefit.

The new benefit, which is projected to cost $400 billion over the next 10 years, could exceed $1 trillion over the following 10 years and approach $2 trillion in the decade after that, Holtz-Eakin said, using reasonable assumptions about future drug spending and demographics.

Entitlement healthcare costs could reach 20 percent of gross domestic product in the long run, he added. "The essential message is, there is no costless spending," Holtz-Eakin said.

In addition to entitlement programs such as Medicare and Medicaid, Holtz-Eakin said there are unpredictable costs over the long term not fully accounted for in the budget, such as credit and insurance programs. Insured pension plans, he said, are underfunded by an estimated $300 billion.

In addition to mandatory spending, discretionary programs such as defense, homeland security and environmental cleanup are poised to consume an ever-increasing share of the economy, and the overall economic downturn has caused tax receipts to fall off in each of the last three years. The Office of Management and Budget recently forecast a $455 billion deficit in fiscal 2003, increasing to $475 billion in 2004. CBO is due to release its next deficit projections Aug. 26.

House Budget Chairman Jim Nussle, R-Iowa, said such dire predictions were all the more reason to clamp down on both short- and long-term spending.

"The spending decisions Congress makes today will have real consequences for the future," Nussle said, arguing that mandatory programs will at some point become "unsustainable" at the current rate.

But Budget ranking member John Spratt, D-S.C., said the long-term budgetary outlook showed that the recent GOP tax cuts were the wrong policy. "Clearly, a timeout should be called before we widen the fiscal gulf of federal government obligations still further, perhaps to the point of making it unbridgeable," Spratt said.