These assumptions, as reflected in the baseline, may represent current law, but arguably they fail to represent current policy.

STUDY BASELINE

The study committee has adjusted the CBO baseline estimates to make what it considers a more credible projection of spending and revenues on the basis of current policies. In doing so, it has relied where possible on estimates provided by CBO of the effects on its standard baseline of alternative policies. This helps maintain internal consistency among the elements of the baseline.

The study baseline adjusts CBO’s standard baseline policy assumptions in seven areas:

  1. extending, beyond its currently scheduled expiration at the end of 2010, the portion of the 2001 and 2003 income tax cuts that affect households earning less than $250,000 a year;

  2. indexing the AMT at the 2009 level;

  3. extending certain other expiring tax provisions;

  4. reducing defense spending to reflect a reduction of troops in Iraq and Afghanistan to 75,000 by 2013;

  5. freezing Medicare physician payment rates, in dollar terms;

  6. including the administration’s estimated cost of future disasters; and

  7. estimating the additional debt and debt service required by the larger deficits that result from the above six adjustments.

These adjustments are intended to produce a more credible projection of current policies; they are summarized in Table B-1. For example, although Congress has not yet decided whether to extend the 2001 and 2003 tax cuts (now scheduled to expire after 2010), it is the committee’s best judgment that those cuts will be extended, as favored by both the Obama Administration and Republican leaders. Similarly, Congress has—with the President’s approval—routinely extended various smaller tax preferences every year or two, making it reasonable to assume future extensions.3 In the same vein, policy makers have consistently adopted temporary “patches” to keep more and more taxpayers from being subject to the AMT. At the administration’s behest, Congress has funded operations in Iraq and Afghanistan chiefly through supplemental appropriations (that is, outside the regular annual defense bill) and it has acted to prevent cuts in physician fees under the Medicare SGR formula.

Deciding how to treat each of these policies in constructing a baseline is obviously a matter of judgment. We have made the adjustments noted for



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