What Will the Budget Look Like in 2022?

In our continued analysis of the President’s budget, we now move to a detailed examination of what the budget would look like at the end of the ten-year window in 2022 and how it would change from today.

As we wrote in our initial analysis of the President’s FY 2013 budget, as the economy recovers and proposed spending cuts go into effect, outlays will decline from 24 percent of GDP in 2012 down to 22 percent by 2018, then rise to about 23 percent by 2022. Revenues, meanwhile, would rise substantially from nearly 16 percent of GDP in 2012 to over 20 percent by 2022. By comparison, average historical revenues and outlays have been about 18 percent and 21 percent of GDP, respectively. 

But the big news over the next 10 years and beyond is how the composition of spending changes as the population continues to age and as spending on health care and interest on the debt begin crowding out other areas of the budget – leaving less room for future investment and discretion in budgeting in general.

Under the President’s proposal, total discretionary spending will shrink from 33.2 percent of the budget in 2013 to 22.1 percent by 2022. At the same time spending on Medicare and Medicaid grows from 21.2 to 22.5 percent of the budget, eclipsing spending on Social Security. And, together, those three programs will take up almost half of the total budget by 2022. Spending to service our debt (Net Interest) more than doubles between 2013 and 2022, growing from 6.5 to 14.6 percent of the proposed budget. This trend in rising interest costs will not subside so long as our debt continues to increase.

Also, as the economy recovers between now and 2022, the President’s stimulus proposals in the American Jobs Act will wind down and countercylical spending will decline. The combination of proposed stimulus and temporary tax cuts would fall from between 3 and 4 percent of total outlays (more than $136 billion) in 2013, to almost nothing by 2022. Among many other policies, the stimulus and tax measures include reform and extension of unemployment insurance, extension of the Social Security payroll tax cut, and investments in infrastructure (not counting the six-year transportation reauthorization proposal).

Additional spending reductions in the President’s budget come from the already-begun phase down of the wars in Iraq and Afghanistan (Overseas Contingency Operations, or, OCO). The estimate for total "savings" from the OCO drawdown over the 2013-2021 budget period is $848 billion (not including interest). Other sources of the decline in spending come from almost $600 billion in health and other mandatory savings, and almost $800 from implementation of the Budget Control Act discretionary caps.

Further, as the economy recovers over the next few years, federal spending levels on income security provisions will take up less of the budget – falling from 14.5 percent of the budget in 2013 to 10.5 percent in 2022. Income security programs include such things as food stamps, supplemental security income, unemployment insurance, and housing assistance, among many other support programs.

The bottom line is that the budget will become increasingly focused on health care spending and especially interest on the debt past 2022. We know one way to slow the growth of the latter: get our debt under control.