CBO recently released its analysis of a hypothetical deficit reduction plan's effect on the economy. They use a $2.4 trillion deficit reduction plan (about the same as the hypothetical Biden group plan) to illustrate the short-term and long-term economic effects of fiscal consolidation, while showing how these effects either add to or detract from the original deficit reduction.
In a recent report, CBO estimated the base defense budget from 2012 out through 2030 using the Defense Department's Future Years Defense Program (FYDP) -- DoD's five-year plan for defense spending submitted to Congress in April 2011 -- to project future spending.
In their recent Long Term Outlook, CBO shows the nation to be on an unsustainable fiscal path if we continue our current policies. Under its Alternative Fiscal Scenario, debt reaches 100 percent of GDP by the end of the decade and 200 percent by 2037.
Spending and revenues in the long-term outlook is always an interesting topic to discuss. Just like with debt, you find words and phrases like "unprecedented" or "extraordinarily high" used frequently. In this blog, we'll use those words a number of times while showing spending and revenue levels under the Extended-Baseline Scenario and Alternative Fiscal Scenario (AFS).
As we explained in our recent analysis of CBO's Long-Term Budget Outlook, the debt is on an unsustainable path. Only a decade from now, under their Alternative Fiscal Scenario, debt will surpass 100 percent of GDP. And by 2037, it will exceed 200 percent.
Driving this is the increasing cost of entitlement spending -- Social Security, Medicare, Medicaid and (to a lesser extent) other health spending. But what drives the growth of these programs?
With the release of CBO's Long-Term Outlook, we thought it would be useful to break down the assumptions that the Extended-Baseline and the Alternative Fiscal Scenario make. Considering the huge divergence in the debt paths of these two scenarios, it is important to understand what they do.
Update: Our paper on CBO's Long Term Outlook has been released.
CBO has just released its 2011 Long Term Outlook, detailing spending, revenue, and debt levels over the next 75 years. The report shows a similar trend in both the Extended Baseline and Alternative Fiscal Scenarios: worsening in the short term, improvement in the long term compared to last year.