CRFB's Breakdown of the Long-Term Outlook
CBO's Long-Term Budget Outlook is a sizeable 126-page document with tons of facts and figures, and an accompanying spreadsheet with even more data. In order to help people pull out the key findings and takeaways from the report, we've condensed the document down to a concise 7-page analysis of the key facts and figures. As we anticipated, it shows that despite some short- and medium-term deficit improvements, both from enacted legislation and from broader changes in the economy, the long-term fiscal outlook still has a long way to go to be sustainable.
Under CBO's current law baseline (and Extended Baseline Scenario over the long term), debt will stay relatively stable over the next decade before increasing dramatically. It will rise from 71 percent of GDP in 2023 to 93 percent by 2035, 129 percent by 2050 and 233 percent by 2085. Deficits will also increase over the 75-year outlook. These totals are much higher than were projected in last year's outlook, of course, due to the fiscal cliff deal which averted much of the deficit reduction that was previously incorporated into CBO's current law baseline (though not incorporated into more realistic projections at the time).
As has been the case for a long time, the drivers of the increased deficits and debt are increases in health care and interest spending, along with (to a lesser extent) Social Security spending. While CBO has revised its long-term projections of health care cost growth down slightly, those gains are ultimately wiped out by increases in CBO's projected life expectancy, so health spending is still expected to increase rapidly from 4.7 percent this year to 7.6 percent by 2035, 9.4 percent by 2050, and 13.5 percent by 2085. Social Security spending will also rise over the next few decades from 4.9 percent of GDP today to 5.3 percent in 2023, 6.0 percent in 2030, and 6.2 percent in 2040. Finally, revenue will rise, but not nearly as quickly as spending, going from from 17.0 percent of GDP in 2013 to 18.5 percent in 2023, 19.0 percent of GDP in 2030, and 20.8 percent in 2050.
Spending by Category and Revenue as a Percent of GDP Through 2050
Although CBO has traditionally publishes an Alternative Fiscal Scenario showing the fiscal impact of continuing a number of current policies, the fiscal cliff deal eliminated a significant source of that difference -- the 2010 tax cut and AMT patches. Instead of publishing a detailed alternative scenario, CBO has instead expanded on its analysis of the economic impact of its current law baseline and the potential impacts of three other alternatives. The analysis shows that the high debt in the baseline would dampen economic growth, causing real per capita GNP to be 4 percent lower in 2038 than it would be if debt was held stable at current levels. On the flip side, two scenarios show additional deficit reduction this decade, and one scenario assumes savings roughly in line for what CRFB has said is the minimum needed to control the debt. Not surprisingly, additional deficit reduction would notably strengthen the economy in subsequent decades. We concisely discuss these details, and others, in our report. We will also have much more analysis in the next few weeks on many different aspects of the report, so stay tuned.
The deadlines coming up this fall may have lawmakers focused on just next year's spending levels, but clearly the economy would benefit from a longer-term view. As we conclude in the paper:
Naturally, lawmakers may be focused on the budget issues that need to be resolved in the next few months (the expiration of the FY 2013 continuing resolution, the debt ceiling, and the ongoing sequestration), but lawmakers cannot forget about the long-term problem and must take advantage of these upcoming opportunities to relieve the debt burden being left to future generations.
Click here to read the full report.