Continuing with CRFB's analysis of CBO's latest long-term budget projections, we now turn our attention to one of the central themes throughout CBO's report: the consequences of large and growing federal debt. Under the CBO's extended baseline, federal debt held by the public will grow to 100 percent by 2038, and continue climbing.
Although some argue that policymakers can wait to solve our long-term entitlement problems, CBO's recent Long-Term Budget Outlook suggests otherwise. According to their projections, the Social Security program is in particular trouble -- and much worse than we thought. According to CBO's latest projections, the trust fund will become insolvent three years earlier than what we previously thought, and its long-term funding gap is 50 percent larger.
Update: The second graph has been corrected to show the correct year for each line.
It is no secret that the growth of federal health care spending is key to the government’s long-term fiscal outlook. With evidence growing that at least some portion of the recent slowdown in health care cost growth represents structural changes in the health care system, the Congressional Budget Office (CBO) revised downward their estimates of health care spending over the coming years from their last Long-Term Budget Outlook in 2012. Despite improved projections in the near term, however, CBO’s projected long-term growth rates remain nearly unchanged and still far in excess of per capita economic growth. Moreover, the short-term gains actually erode over time due to increased projections of longevity.
In fact, while spending on Medicare is now estimated to be 4 percent lower over the next decade than it was last year, CBO actually increased its projections of program growth after 2023 (from an average annual rate of 6.4% from 2023-2050 to 6.5%). Even within a decade, though excess cost growth (the per beneficiary growth above economic growth per capita) for Medicare is expected to average only 0.3 percent (in part due to the effects of the 24 percent physician payment cut dictated by the Sustainable Growth Rate formula), it is expected to rise back to 1.4 percent by 2023, which has been a more typical level in the past.
Part of the explanation is that CBO now expects higher per beneficiary spending growth in the 2020s and only slightly lower growth thereafter. Looking at the causes of the recent slowdown, CBO explains that “even the portion of the recent slowdown that reflects structural changes in payment mechanisms or in how care is delivered may represent [a] one-time downward shift in costs rather than a persistent reduction in the growth rate.”
Politicians and economists have long talked about the negative effects of an accumulating national debt, but cannot always quantify their position. This week's report on the long-term budget outlook from the Congressional Budget Office (CBO) attempts to put some hard numbers behind the consequences of high debt.
Update: CBO has now released its official Alternative Fiscal Scenario estimates (tab 6 of the Excel). They find that debt reaches 165 percent of GDP in 2039, one year later than we estimated.
CBO's Long-Term Budget Outlook is a sizeable 126-page document with tons of facts and figures, and an accompanying spreadsheet with even more data. In order to help people pull out the key findings and takeaways from the report, we've condensed the document down to a concise 7-page analysis of the key facts and figures.
The Congressional Budget Office, on Friday, estimated that the Energy & Commerce Committee’s (E&C) bill to permanently replace the flawed Sustainable Growth Rate (SGR) formula is expected to cost $175.5 billion from 2014-2023, $36 billion higher than the cost of a permanent freeze in Medicare physician payments. !-
Reading the news these days, you might think our debt problem has been solved: the federal deficit has been revised downward and is falling to its lowest level in five years. Yesterday, however, Congressional Budget Office (CBO) Director Doug Elmendorf made clear that he, for one, does not subscribe to that view.