More from the CBO on the Federal Budget

In my last article, I summarized the Congressional Budget Office's (CBO's) long-term outlook regarding the massive federal budget.

This topic is of crucial interest to all Americans, and our offspring. Because of its importance, I want to provide a concise summary of the CBO's comments on this matter.

The federal budget is on an unsustainable path—meaning that federal debt will continue to grow much faster than the economy over the long run.

The following graph illustrates the US debt as a percent of Gross Domestic Product (GDP).


Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the U.S. population will cause federal spending to increase rapidly.

Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits and accumulating debt.

Keeping deficits and debt from reaching levels that would cause substantial harm to the economy would require increasing revenues significantly as a percentage of gross domestic product (GDP), decreasing projected spending sharply, or some combination of the two.

For decades, spending on the federal government’s major health care programs, Medicare and Medicaid, has been growing faster than the economy (as has health care spending in the private sector).

The CBO projects that if current laws do not change, federal spending on Medicare and Medicaid combined will grow from roughly 5 percent of GDP today to almost 10 percent by 2035 and to more than 17 percent by 2080. That projection means that in 2080, without changes in policy, the federal government would be spending almost as much, as a share of the economy, on just its two major health care programs as it has spent on all of its programs and services in recent years.

Spending on Social Security is also projected to rise over time as a share of GDP, albeit much less dramatically. CBO projects that Social Security spending will increase from less than 5 percent of GDP today to about 6 percent in 2035 and then roughly stabilize at that level through 2080.

CBO’s long-term budget projections raise fundamental questions about economic sustainability.

If outlays grew as projected and revenues did not rise at a corresponding rate, annual deficits would climb and federal debt would grow significantly. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress income growth in the United States. Over time, the accumulation of debt would seriously harm the economy.

Alternatively, if spending grew as projected and taxes were raised in tandem, tax rates would have to reach levels never seen in the United States. High tax rates would slow the growth of the economy, making the spending burden harder to bear.

Policymakers could mitigate the economic damage from rapidly rising debt by putting the nation on a sustainable fiscal course, which would require some combination of lower spending and higher revenues than the amounts now projected.


There is only so much the US can put on credit before we change the economic face of this great nation...and place ourselves a great strategic risk, economically, politically and defense-wise, in the world community.