CBO: U.S. Fiscal Path is Unsustainable

Special Guests: Dr. Phillip Swagel

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This week on Facing the Future, our guest was Dr. Phillip Swagel, Director of the nonpartisan Congressional Budget Office (CBO). The CBO just released its Budget and Economic Outlook for 2024-2034, which extends budget projections and economic forecasts over the next 10 years under the assumption that current spending and tax laws remain generally unchanged. Concord Coalition policy director Tori Gorman and chief economist Steve Robinson joined the conversation.

“The big picture is similar to the past,” Swagel told us. “The U.S. fiscal trajectory is unsustainable. We have wide deficits out into the future, and that means rising debt. It’s not that we’re going to fall off some sort of fiscal cliff at any moment, but over time there’ll be increasing risks to the U.S. economy from the fiscal situation.”

Swagel highlighted the increasing cost of servicing the debt, which he said is “really becoming a large and meaningful share of our budget deficit.” Over the longer term he said, the fiscal challenge is “a familiar one, which is from entitlement spending, Social Security and Medicare, reflecting the aging of our population and excess cost growth in healthcare.”

There were also some positive developments in this year’s report. Swagel noted that the Fiscal Responsibility Act of 2023 and subsequent continuing resolutions improved the 10-year fiscal balance by about $2.6 trillion, although the net improvement was reduced to $1.4 trillion dollars because of other developments that increased deficits. 

“The other thing that is salient in our projections,” Swagel noted, “is the impact of the surge of immigration that the United States has experienced since 2022. We calculate that the labor force – the number of people working in the United States or available to work in the United States – will be about 5.2 million higher at the end of our 10-year budget window than we thought would be the case a year ago. That’s 5.2 million more people available to work. And that has an impact on the economy. And then an impact on the budget.”

Swagel explained that the CBO baseline projections assume current law, which affects both the policy outcomes and the economic projections. In other words, CBO is not trying to guess what Congress will do, even if current law seems likely to change. 

One glaring example is the scheduled 2025 expiration of tax cuts enacted in 2017. “The expiration of many of the provisions in the December 2017 tax act shows up very clearly in our projections of revenues,” Swagel said. “Going from 2025 to 2026, there’s an increase in revenues of about 0.9 percent of GDP. It’s on the order of $300 billion dollars a year in additional revenue, and that’s there, because that’s current law. There are many proposals to extend all of the 2017 act, or much of it, and depending on what eventually is enacted, that would have additional costs in terms of revenues.”

Swagel explained that current law policy assumptions affect CBO’s economic projections, which is what distinguishes those projections from other independent forecasters. That distinction is important for making comparisons.

“There are sections [of the report] that compare our forecast to others. And that’s a comparison that I welcome,” Swagel said. “An Important part of our forecast is that it’s based on current law, whereas other forecasters naturally will have a view about what will happen in the future. And so you can imagine there are many forecasters

who, for instance, think about what GDP would be in 2026, or even in 2025. They would have to have a view about what will happen to all the expiring tax provisions and that view will inevitably affect someone’s view of business investment, consumer spending and GDP growth. And so that kind of policy view would then affect the economic forecast.”

In Swagel’s view, “It’s just a different thing that we’re doing than what other forecasters are doing. It’s totally appropriate for them to say what their view is of what Congress will do and what the Fed will do and put that into their forecast. We’re not trying to get in front of the Congress. We’re trying to say, ‘here’s the situation under current law.’ That’s why I think it’s important for CBO to do its own [economic projections].”

Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.

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