CBO Deficit Projections

While the headlines coming out of their latest report focus on Obamacare’s effect on jobs, the Congressional Budget Office (CBO) also released incredible news about our debt future. Deficit projections may seem irrelevant to today’s concerns, and overly technical to be of any use, but the latest CBO forecast should prompt serious action by our political leaders to control our debt.
The Basics:
President Obama cheers the fact that the deficit has dropped at the fastest rate in history, as the deficit will be $514 billion in 2014 compared to $1.4 trillion in 2009. We can applaud this drop while still drawing attention to the pressing problems underlying such objectively large deficits. Think about it this way, if a lumber company wipes out an entire forest one year, but only chops down half of a forest the next, it’s unlikely we would say they’d become environmentalists the second year. It’s important to keep in mind that these reduced deficits are coming off of massive highs in recent years.
According to the CBO, the deficit is actually projected to drop again to $478 billion, which is good news. But, from 2016 onward, the deficit climbs back by an average $66 billion a year. The key reason is that while federal revenues are expected to grow with GDP, spending is projected to grow faster than GDP.
The Problem:
While spending money we don’t have is the chief concern for rising deficits over the next decade, which programs on which we are spending the money is of greater importance. CBO consistently cites Social Security, Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance in the exchanges as the most culpable programs driving the expanding deficits. Simultaneously, interest on the debt is expected to triple from $230 billion this year to $880 billion by 2024.
Such spending is termed “mandatory” because each year these programs’ outlays are set by a formula that rises on autopilot. Without policy changes by congress to curb mandatory spending, we risk the very existence of these programs and our ability to pay for anything else. Interestingly, defense spending and benefit programs other than the ones listed above are actually expected to go down some over the same time, though recent developments overseas call this expectation into question.
Where Do We Go From Here?
Even if Congress holds firm with current sequestration policy (unlikely following the spending set in the Ryan-Murray budget deal), entitlements remain a grave problem for our nation’s fiscal stability. Tinkering around with agriculture subsidies and Amtrak funding may be more politically palatable than reforming federal health and retirement programs, but the quickly approaching solvency crisis of the latter should help to highlight the importance of such entitlement reform.
This CBO report illustrates the very real crisis facing the country, and before long, tough choices will have to be made. This means redesigning entitlement benefits, consolidating bureaucracies, block grant programs for the states, and seeking non-governmental alternatives to retirement and healthcare. Such fiscal decisions over the next ten years have no viable alternative, and this CBO projection emphasizes the need for serious reform to the major drivers of spending.