CBO Continues to Show Unsustainable Debt Path
In advance of the release of their analysis of the President's budget, the Congressional Budget Office (CBO) has updated their budget baseline for fiscal years 2015-2024. While the newest projections are a slight improvement over their previous estimates in February, they still show debt on a clear upward path as a share of GDP starting in 2018 and likely continuing over the long term.
In the latest baseline, debt declines from 74 percent in 2014 to 72.4 percent by 2017 before rising to 78 percent by 2024. This is a similar path to the February outlook, in which debt reached 79 percent by 2024. This upward path would likely continue thereafter as health care cost growth and demographics cause increased spending on entitlement programs.
Over the next ten years, CBO projects deficits to total $7.6 trillion, or 3.4 percent of GDP. This is $285 billion lower than the $7.9 trillion, or 3.5 percent of GDP, deficits in the February projections. Spending totals 21.5 percent of GDP over ten years, while revenue totals 18.1 percent of GDP. Because many of the changes in this baseline are on the spending side, it is slightly lower than it was in February while revenue remains similar. In terms of the path, spending stays around 21 percent of GDP until 2019 when it gradually increases to 22.1 percent by 2024.
|Budget Metrics in CBO's Updated Baseline (Percent of GDP)|
The changes in this baseline since February reflect downward revisions to health care spending. The largest change is a $186 billion ten-year downward revision to the cost of the exchange subsidies and related spending, due to the lowering of projected premiums in the exchanges. Based on recent trends in spending growth and an analysis of spending on prescription drugs for low-income beneficiaries, Medicare outlays have been revised down by $98 billion over ten years, with $56 billion of that coming from Part D. Medicaid outlays are up by nearly $30 billion due to higher projected enrollment among other effects. Supplementary Nutrition Assistance Prorgram (also known as food stamp) spending is down $24 billion due to lower projected average benefits. Discretionary spending is down $23 billion from lower spend-out rates for certain military spending.
Revenue is largely similar to the February projections but has been revised down slightly by $56 billion over ten years. That mostly reflects a higher than expected number of people getting health insurance through their employer, which reduces the tax base. There are also some offsetting revisions to payroll taxes.
|Changes in CBO's April Baseline (billions)|
|2015-2024 Savings/Costs (-)|
|February 2014 Deficits||-$7,904|
|Exchange Subsidies and Related Spending||$186|
|Food Stamps (SNAP)||$24|
|Individual Income Taxes||-$7|
|April 2014 Deficits||-$7,618|
^Largely reflects changes in the projected size of employment-based health insurance
Although CBO's projections show slight improvement from February, February's numbers showed significant deterioration from previous baselines. The fiscal outlook necessitates action to put debt on a downward path as a share of GDP over the long term. On Thursday, when CBO releases their analysis of the President Obama's Budget, we will see the extent to which his budget achieves this goal.