I haven't read the thing but I've skimmed a few sections here and there and I've looked at some of the graphs where as they say, a picture is worth a thousand words.
Here are the ones that caught my eye.
The "Extended-Baseline Scenario" assumes that current tax and spending policies are not changed going forward. Thus, some tax cuts that are set to expire actually expire and some tax increases set to take place do become activated. Likewise, spending increases and decreases currently projected to occur become realized.
As you can see most spending remains steady except for the health care part of the budget (Medicare for elderly, Medicaid for poor, CHIP for children and Exchange subsidies for the newly passed 2010 health reform law) which looks to increase 2-3 fold.
The revenue line grows to 30% of the GDP to cover the increased spending.
The "Alternative Fiscal Scenario" is based on current tax and spending policies but assumes some of the tax increases expected to occur in the "Extended-Baseline Scenario" will not occur for obvious political reasons as well as tax cut expiration dates get pushed further into the future. Likewise, some of the spending cuts expected to occur in the "Extended-Baseline Scenario" do not occur for obvious political reasons.
As you can see the overall spending in this scenario grows just like the other one but the revenue line holds at 18%.
Thus, the key facts:
(1) Spending will go up in either scenario. The baseline scenario goes up slightly less compared to the alternative scenario probably because the alternative scenario assumes some promised spending cuts don't actually happen.
(2) Revenue as % GDP rises in the baseline scenario while it doesn't in the alternative scenario.
Is the rise in taxes assumed in the baseline scenario realistic?
Historically, how much taxes have we paid?
That is shown in the graph below.
Tax revenue has been remarkably flat in the last 40 years. It has been as low as 15% of GDP due to the recent economic downturn combined with tax cuts to try to revive the economy. It has been as high as 20% during the boom time of the 90s just before the double hit of recession and 9/11 in 2001.
Thus, the "Alternative Fiscal Scenario" that assumes ~ 18% GDP tax revenues is historically realistic.
Key policy question:
(1) Does the Federal government back off on the spending to match the more historically realistic revenue behavior of the last 40 years?
(2) Or does the Federal government go on a full-court press to explain that taxes need to rise in order to pay for the promised health benefits which account for the bulk of the growth of the government in the decades ahead?
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