James Pethokoukis

Politics and policy from inside Washington

Scary fun budget facts from the CBO

June 26, 2009

Pay no attention! Nothing to see here! Excerpts from the Congressional Budget Office:

1) The Congressional Budget Office 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 .

2) That projection means that in 2080 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.

3) Almost all of the projected growth in federal spending other than interest payments on the debt comes from growth in spending on the three largest entitlement programs— Medicare, Medicaid, and Social Security.

4) By CBO’s estimates, the increase in spending for Medicare and Medicaid as a share of GDP will account for 80 percent of spending increases for the three entitlement programs between now and 2035 and 90 percent of spending growth between now and 2080.

5) The current recession has little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II.

5) As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010.

The CBO bottom line:  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.

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