CBO's New Long-Term Budget Projections

Today the Congressional Budget Office (CBO) released new projections and analysis of the long-term fiscal problems facing the U.S. CBO director Douglas Holtz-Eakin will present the findings at an event sponsored by the Committee for a Responsible Federal Budget on Monday, December 22, at 2:30 pm. The forum will be at the New America Foundation, 1630 Connecticut Avenue, 7th floor.

Here are the study's main findings:

1. Driven by rising health care costs and an aging population, spending on entitlement programs -- especially Medicare, Medicaid, and Social Security -- will claim a sharply increasing share of the nation’s economic output over the coming decades.

2. Unless taxation reaches levels that are unprecedented in the United States, current spending policies will probably be financially unsustainable over the next 50 years. An ever-growing burden of federal debt held by the public would have a corrosive and potentially contractionary effect on the economy.

3. As the U.S. tax system is currently configured, revenues will increase as a share of gross domestic product. Under current law, taxpayers will face higher rates, with detrimental consequences for work, saving, and economic growth.

4. Fiscal policy could be financially sustainable if the growth of health care costs slowed significantly from historical rates. But even in those circumstances, tax revenues would probably need to be higher than they have been in the past.

5. If taxation is restricted to the levels that prevailed in the past, the growth of entitlement spending will have to be substantially reduced. Restricting the growth of outlays for defense, education, transportation, and other discretionary programs would not be enough to ensure fiscal sustainability.

6. Likewise, economic growth alone is unlikely to bring the nation’s long-term fiscal position into balance. Moreover, issuing ever-larger amounts of debt or dramatically raising tax rates could significantly reduce growth.

Links:
Congressional Budget Office The Long Term Budget Outlook (December 2003)
Centrists.Org Commentary: CBO's New Long-Term Budget Projections (December 22, 2003)

Posted by Jeff Lemieux at December 19, 2003 05:22 PM