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1 (February 29, 2008)

handle is hein.crs/crsaiqr0001 and id is 1 raw text is: Order Code RS21939 Updated February 29, 2008 The Magnitude of Changes That Would Be Required to Balance the FY2009 Budget Marc Labonte Specialist in Macroeconomics Government and Finance Division Summary A balanced federal budget is a bipartisan goal of many Members of Congress. In addition, moving the budget closer to balance is a long-term necessity because the national debt cannot grow as a percentage of GDP indefinitely, as it would under current policy. The budget deficit in FY2009 is projected to be between $198 billion and $407 billion. Mathematically, the budget could be balanced by reducing total spending by 7%-14%, or mandatory spending by 11 %-24%, or discretionary spending by 17%-32%, or non-military discretionary spending by 36%-72%, or by raising income tax rates by 14%-31%, or some combination of these options. The budget is unlikely to return to balance on its own, as some have suggested, because higher growth rates should be incorporated in the projections; research suggests that the revenue estimates of tax cuts are unlikely to be significantly overstated; and the decline in the deficit found in the CBO baseline or President's budget rests on assumptions that differ substantially from what is typically thought of as current policy. This report assumes a familiarity with basic budgetary terms and concepts and will be updated as events warrant. Many Members of Congress of both parties support the goal of a balanced budget. In addition, moving the budget closer to balance is a long-term necessity because the projected deficits would cause the national debt to grow indefinitely as a percentage of GDP.1 If this occurred, it would eventually result in financial insolvency. This report lays out generic scenarios for balancing the budget in the next fiscal year. Although these are not policy options that are likely to be enacted, they are meant to offer simple examples to gauge the scope of tradeoffs that would be required if policymakers eventually decide to bring the budget back to balance. If changes are postponed or stretched over a longer time period, they would need to be larger because of higher debt service. (CRS does not take policy positions on the appropriate time frame for balancing the budget.) Under the Congressional Budget Office (CBO) baseline of current policy, the FY2009 budget deficit is projected to be $198 billion. In the Administration's budget proposal, the deficit would be $407 billion. However, these estimates are unlikely to 1 See Congressional Budget Office, Long Term Budget Outlook, December 2007.

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