Introducing CRFB's Latest Long-Term Realistic Baseline
The release of the Congressional Budget Office's (CBO) Long-Term Budget Outlook is one of the big events in the budget world, and we'd like to think that this blog is as well: the update of our CRFB Realistic Long-Term Baseline. Based off of the ten-year CRFB Realistic Baseline and CBO data, our long-term baseline draws a plausible path for where our future deficits and debt are headed.
The results aren't pretty. In our base scenario -- which begins with current law and incorporates sequester and SGR repeal, reduced war and hurricane spending, and an extension of certain tax credits expiring in 2017 -- debt bottoms out as a percentage of the economy in 2018 and then grows sharply and continuously thereafter. Under our base case, debt will rise to about the size of the economy by 2035, nearly 150 percent of GDP by 2050, and will exceed 300 percent of GDP by the early 2080s.
Debt as a Share of GDP under CRFB Realistic Baseline
Source: CBO, CRFB calculations
Our baseline also shows a "realistic assumption band" representing a range of possibilities based on different policy assumptions.
Smaller Realistic Band (blue): The smaller realistic band illustrates the effects on our long-term debt trajectory if we left sequestration in place (on the lower debt side) or permanently extend a host of temporary tax provisions that usually get extended (on the higher debt side).
Larger Realistic Band (red): In addition to the alternative policy possibilities highlighted in the smaller band, the larger realistic band assumes health and other mandatory spending grow slower than in our base case (at CBO's baseline rate) on the lower debt side. The high-debt scenario additionally assumes that revenue no longer grows as a share of GDP due to real bracket creep after 2023 (though it would grow modestly for other reasons).
The table below explains in detail the assumptions behind CRFB's Realistic Baseline and how they compare to CBO's Extended Baseline scenario. In some areas, such as the sequester, our adjustments would increase debt projections. In others, such as war spending, they would decrease debt projections.
Assumptions in CRFB Realistic Baseline Compared to CBO's Extended Baseline Scenario
Taken together, these assumptions paint a fiscal picture somewhat worse than CBO's Extended Baseline Scenario (which we analyzed here). Under our base case, spending would grow from 21 percent of GDP in 2013 to 26 percent by 2035 and 42 percent by 2080 -- a large portion of that interest costs. Revenue, meanwhile, grows from 17 percent in 2013 to 19.5 percent by 2035 and almost 24 percent by 2080, a substantial and unprecedented increase which would still be insufficient to avoid massive deficits. Those deficits, under our base case, would rise to 7 percent by 2035 and 18 percent by 2080.
|Budget Metrics in Different Baselines (Percent of GDP)|
|CRFB Realistic Baseline|
|Low and High Ranges of CRFB Realistic
|Outlays||21%||21% to 22%||25% to 27%||28% to 32%||31% to 39%||35% to 48%|
|Revenue||17%||18% to 19%||19% to 20%||19% to 21%||20% to 22%||20% to 24%|
|Deficit||-4%||-3 to -4%||-5% to -8%||-7% to -13%||-9% to -19%||-11% to -27%|
|Debt||73%||69% to 75%||87% to 109%||118% to 180%||153% to 279%||196% to 413%|
Source: CBO, CRFB
These projections show that even though deficits are declining for the next few years, policymakers should act quickly and thoughfully to put in place a comprehensive deficit reduction plan which truly addresses the long-term fiscal situation. The country is on an unsustainable path which must be avoided.