The Congressional Budget Office (CBO) yesterday released new projections showing the federal deficit at $486 billion in 2015, about the same as last year. This is $18 billion higher than the budget office’s January estimate.
After this year, deficits are projected to remain flat or slightly decline until 2018, when they will begin to grow again. This growth would be due to spending increasing faster relative to the economy in the mandatory portion of the budget — which includes Social Security and major health care programs — while federal revenues remain flat as a share of the economy.
Under current law, CBO projects, deficits will total $7.2 trillion over the next decade, pushing federal debt to 77 percent of the economy by 2025. That is over twice the average of the past four decades.
CBO says this would have serious negative effects, including higher interest payments on the debt, lower wages, and less flexibility for the government to respond to unexpected challenges like an economic downturn.
CBO and the Joint Committee on Taxation also updated their cost estimate for the insurance coverage provisions of the Affordable Care Act (ACA). The new numbers show those provisions will cost $1.2 trillion over the next decade, 11 percent less than their estimate in January. This is not an overall score of the entire ACA’s effect on the budget, only of its coverage provisions.
The primary reason for this lower estimate is a downward revision in projected costs for insurance companies, following the overall trend of slower health care cost growth. This would mean lower government spending on the law’s private insurance subsidies. Since the ACA’s enactment, projected costs for 2019 (the last year in CBO’s original scoring of the law) have gone down by 33 percent.
The Treasury Department also recently released its Financial Report of the U.S. Government, which reaffirms that the long-term course of the budget is unsustainable.
According to the report, the 75-year gap between spending and dedicated revenue estimated at present-value is $13.3 trillion for Social Security and $28.5 trillion for Medicare. Such calculations — while useful in identifying basic fiscal challenges — require the use of highly uncertain assumptions and variables.