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Policy: Economy

Congressional Budget Office downgrades fiscal outlook, but not because of debt

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The outlook for the federal debt is still grim, the Congressional Budget Office reported Tuesday, and largely unchanged despite the rollout of Obamacare and a budget deal since its last projection were issued.

The CBO, Congress' nonpartisan budget scorekeeper, estimated that the budget outlook has deteriorated slightly since its 2013 projections: The federal debt is now projected to be 106 percent of the country's economic output in 2039, up from 102 percent previously, if current law is maintained. In a more realistic scenario, allowing for likely fixes to the budget, that total will be 180 percent. Both scenarios involve the nation's obligations on an “upward path relative to the size of the economy, a trend that could not be sustained indefinitely.”

The current federal debt held by the public is roughly $12.5 trillion and will total 74 percent of gross domestic product this year, according to the CBO.

But the worsening debt-to-GDP ratio is not due to greater debt accumulation, according to the CBO. Instead, it's a function of slower anticipated economic growth. The CBO had previously downgraded its estimates of economic growth to reflect the economy's weak performance in recent years and its projections for slower labor force and productivity growth.

One other notable change in the CBO's projections was a “significantly larger” shortfall in the Social Security trust fund. The combined trust fund for Old Age and Survivors' Insurance and Disability Insurance is now expected to be exhausted in 2030, rather than 2031.

Otherwise, however, the projections, which extend CBO’s normal 10-year budget window by 25 years, are mostly unchanged from last year.

As in recent years, the CBO estimates show that the fiscal situation is unsustainable, with the debt headed toward levels only seen once before in U.S. history -- after the military spending of World War II. The CBO's projections are subject to uncertainty, meaning that the debt could be significantly higher or lower in 2039. Another possibility is that the country faces a debt-related crisis before then: It's “impossible to predict with any confidence” how long the run-up in debt could be sustained, according to the CBO. “At some point, investors would begin to doubt the government's willingness or ability to pay its debt obligations,” the report warned.

Even without a crisis, however, the debt is on track to strain the government’s resources and put pressure on discretionary programs such as military spending and domestic programs.

Spending on entitlements such as Social Security and health care programs is going to double, as will interest payments on the debt. Spending on all other priorities will shrink in response.

The trend toward government spending on health care has come at the same time that health care cost growth has slowed, in the CBO’s analysis. The current projection for spending on the government’s major health care programs in 2039 is lower than the CBO’s 2010 projection by about 1.5 percent of gross domestic product. That is a difference of roughly $250 billion, in 2014 GDP terms, and would be much larger in 2039. That improvement comes separately from any changes due to Obamacare and reflects the CBO’s changing measurement of trends that pre-date the recession.

The White House Office of Management and Budget issued projections Friday in its mid-session review that the deficit would fall to $583 billion this year, and that debt would be the same in 2024 as it is this year as a share of GDP.

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