Report: tax cuts won’t lead to balanced budget

WASHINGTON – President Bush can balance the budget within five years, or he can get Congress to extend his tax cuts beyond their scheduled expiration, the Congressional Budget Office reported Wednesday – but probably not both.

Bush has said otherwise, committing himself in Tuesday’s State of the Union address, as he did earlier this month, to providing Congress on Feb. 5 with spending and tax proposals for fiscal year 2008 that would put the budget on a path toward balance by 2012.

“We must balance the federal budget,” Bush said Tuesday night. “We can do so without raising taxes.”

The nonpartisan CBO, in its annual report on where current spending and tax policies would take the budget over the next 10 years, painted an unmistakable picture of a budget that needed an extra infusion of cash or a sharp reduction in outlays if revenues were to exceed spending.

And even if the budget could be balanced in 2012, said Peter R. Orszag, the CBO’s director, the retirement of the baby-boom generation could quickly unbalance it: Not only would the wave of retirees force the government to spend more for Social Security, Medicare and other benefit programs, he said, but it would drain the population of taxpaying wage-earners.

Republicans in Congress saw the report as portraying a potentially bright budgetary future.

“Congress is within reach of balancing the budget without raising taxes if significant entitlement reforms are enacted within the next five years,” said Rep. Paul Ryan of Wisconsin, the top Republican on the House Budget Committee. “Without such reforms, these programs will overwhelm the budget and jeopardize the health of our economy.”

To Democrats, the fiscal outlook was gloomier. Senate Budget Committee chairman Kent Conrad of North Dakota said the CBO must base its projections on current spending and tax law, without regard to likely changes. The Iraq war, he said, is underfunded – the administration is expected soon to ask for another $100 billion for this year – and the tax cuts that Bush wants made permanent are due to expire at the end of 2010.

When the budget office’s projections are adjusted for these and other factors, said Rep. John Spratt, D-S.C., chairman of the House Budget Committee, the result is “a bleak reminder of how much current policy will need to be changed to return the budget to a fiscally responsible course.”

Under current law, if the tax cuts expire as scheduled at the end of 2010, the budget would swing nearly to balance in 2011 and show a $170 billion surplus in 2012, according to CBO estimates.

But that would occur only if Congress allows the tax cuts to expire. Such a decision – far from a foregone conclusion – would generate $268 billion in revenue in 2012. Without it, there would be a $100 billion deficit.