Yesterday, the Congressional Budget Office (CBO) released a rather dismal long-term budget outlook that illustrates how “persistent deficits” will make our debt continue to climb over the decade ahead. The projections show that the debt will increase from 74 percent of GDP in 2014 (already twice as high as the 35 percent of GDP seen as recently as 2007) to 77 percent in 2024. Even worse, there is no end in sight thereafter unless serious reforms are implemented. Some news outlets are trying to paint a rosier than deserved picture of the report by focusing on the fact that the CBO’s projection is slightly less terrible than previous projections by about $400 billion or .8 percent, but the debt and deficit problems cannot be ignored.
Here are three major take-aways taxpayers should have from CBO report:
1. The Budget Control Act was a success – but we need to do more to curb spending.
The CBO report notes that:
The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year.
The federal budget deficit for fiscal year 2014 will amount to $506 billion, CBO estimates, roughly $170 billion lower than the shortfall recorded in 2013. At 2.9 percent of gross domestic product (GDP), this year's deficit will be much smaller than those of recent years (which reached almost 10 percent of GDP in 2009) and slightly below the average of federal deficits over the past 40 years.
This temporary deficit reduction is largely thanks to the modest spending restraint imposed by the Budget Control Act (BCA) of 2011. For those who suggested that the BCA and subsequent sequester would be nothing short of disastrous for our economy and society writ large, the numbers beg to differ. Unfortunately, the BCA doesn’t completely put the brakes on spending and budgets are on track to continue to creep upward, albeit at a slower pace than before.
Unfortunately for taxpayers, even as the CBO confirms the BCA was a success, some legislators are working to undermine those spending caps, hoping to pass to a budget-busting bill as soon as this fall, potentially during a lame-duck session of Congress when legislators feel less accountable to their constituents. Taxpayers need to urge their legislators not to bust the BCA’s caps and to do more to rein in spending.
2. The debt is still growing – thanks largely to out-of-control entitlement spending.
The CBO report explains that even as deficits have fallen for the time being, our debt has grown under the BCA and will continue to do so. This is largely due to massive growth in spending in mandatory spending on entitlement programs, which are largely unaffected by BCA spending limitations. Over the next decade, discretionary spending is expected to increase by “only” about 20 percent. During the same time period, mandatory spending will sky-rocket:
Boosted by the aging of the population, the expansion of federal subsidies for health insurance, rising health care costs per beneficiary, and mounting interest costs on federal debt, spending for the three fastest-growing components of the budget accounts for 85 percent of the total projected increase in outlays over the next 10 years:
- Annual spending for Social Security is projected to grow by almost 80 percent. Under current law, outlays for that program would climb from 4.9 percent of GDP this year to 5.6 percent in 2024, according to CBO's estimates.
- Annual net outlays for the government's major health care programs (Medicare, Medicaid, the Children's Health Insurance Program, and subsidies for health insurance purchased through exchanges) are projected to rise by more than 85 percent. Outlays for those programs would grow from 4.9 percent of GDP to 5.9 percent, CBO anticipates.
- Outlays for net interest in 2024 are projected to be more than triple those in 2014—the result of both projected growth in federal debt and a rise in interest rates. Net interest outlays would rise from 1.3 percent of GDP this year to 3.0 percent by the end of the coming decade, CBO expects.
3. Increased taxes won’t solve this debt crisis.
The CBO’s report projects revenues will grow at an annual rate of 4.9 percent, yet makes it clear that these potential revenue increases aren’t nearly enough to close the spending gap. What continues to be apparent is the increasing debt continues to erode our potential prosperity and hampers economic recovery. Policy options such as closing tax “loopholes” and otherwise increasing revenue will only further imperil our already fragile economy.
Though the future may look grim, Congress has many opportunities to ensure that the CBO’s latest projects are an unfulfilled prophecy. Enacting legislation that will put people back to work, reform entitlements, and reduce wasteful spending would all ensure that the next CBO projection isn’t quite so bleak.