Former CBO director and CRFB board member Alice Rivlin was interviewed by the Fiscal Times Sunday on the state of our budget and economy. Rivlin emphasized that while short-term improvements have been made in terms of the current fiscal outlook and economic recovery, there are still numerous long-term problems that remain.
Yesterday, the Center on Budget and Policy Priorities updated its long-term outlook for the federal budget and like our long-term Realistic Baseline, its shows debt on a clear upward path. Debt will fall in the next few years as the economy recovers and revenue rebounds, but will steadily rise in the following decades as the baby boomers retire and entitlement spending grows. By 2040, debt will have grown to nearly 100 percent of GDP in CBPP's Base Case scenario.
When the financial crisis began at the end of 2007, it soon became clear that the government would need to run higher deficits in response. Tax revenue fell, spending on "automatic stabilizers" rose, and policymakers enacted new spending to stimulate the economy. At that time, the debt level was lower and in line with historical averages, giving lawmakers the room to borrow what they needed to adequately respond.
As we've said before, while the new budget projections from the CBO are an encouraging sign, it is easy to be overly optimistic about what the revisions mean for our fiscal outlook. While short-term deficits are falling, the long-term path is worrisome and insufficient progress has been made on that front.
As we have written before, the CBO recently released updated projections that show an improvement in the fiscal climate. Based on CRFB’s realistic baseline, the new data suggests that the debt will rise to 76 percent of GDP in 2023 as opposed to 79 percent.
The CBO has now spoken on how the President's budget would affect the fiscal outlook. Debt would fall to 70 percent of GDP by 2023, compared to 73 percent under current law and 76 percent under our latest iteration of the CRFB Realistic baseline (though we are still working on the precise number as we get new information).
Today, the Congressional Budget Office (CBO) released its analysis of President Obama’s FY 2014 budget request. CRFB has released a reaction to the score of the budget, praising the President for putting forward a deficit reduction offer that addresses the country's debt path, but warning that there would still need to be more done, particularly on entitlement spending.