WASHINGTON -- Long-term projections released today by the Congressional Budget Office (CBO) provide a timely warning for President Trump and Congress as they begin focusing on tax and spending plans for the coming fiscal year, according to The Concord Coalition.
“The government is already on track to add trillions of dollars of debt over the next decade,” said Robert L. Bixby, Concord’s executive director. “Beyond then, Washington’s fiscal situation will continue to deteriorate on an unsustainable path, as the CBO’s latest 30-year projections make clear.”
Bixby added: “We must deal with the key drivers of future deficits: the rising costs of health care programs, Social Security, and interest on the debt. Current budget discussions focused only on annual appropriations levels -- a part of the budget the CBO report shows is not projected to grow relative to the economy -- are far too limited.”
The fundamental reasons for rising projected deficits are no mystery. Members of the large baby boom generation will continue to leave the workforce and begin receiving benefits from Medicare and Social Security, which already claim a significant part of the federal budget. In addition, the federal government, like families and businesses, faces health care costs that are growing faster than the economy.
While other budget programs are projected to shrink as a share of GDP from 8.9 percent in 2017 to 7.6 percent in 2047, Social Security spending is projected to grow from 4.9 percent of GDP in 2017 to 6.3 percent in 2047. Spending on the major government health programs is projected to rise from 5.5 percent of GDP in 2017 to 9.2 percent of GDP in 2047.
Virtually all of the spending growth in Social Security is due to the aging population, as is 40 percent of the growth in health care spending, with the rest of the increase due to “excess cost growth” in health care.
“The Trump administration will soon face a choice through administrative action and its upcoming comprehensive budget proposal on whether to further health care cost control efforts or give in to the temptation to take the easy road and back down on recent cost control advancement,” said Joshua Gordon, Concord’s policy director. “Ideally, the administration will look at the CBO’s report and come down on the side of more efficient federal health care spending and long-term cost control.”
Meanwhile, the inefficient federal tax system fails each year to provide enough revenue to cover government spending. “Tax expenditures” -- tax code provisions that are essentially spending programs in disguise -- amount to an estimated $1.5 trillion this year. So tax reform should be considered an essential part of making the federal budget more sustainable.
Under current law the government will spend much more on interest in the years ahead because of the growing debt and higher interest rates. The budget office projects that net interest costs would rise from 7 percent of total federal spending today to 21 percent by 2047. The average for the past 50 years is only 10 percent.
In the budget office’s annual Long-Term Outlook, CBO makes projections for the next 30 years. This year, as in the past, the budget office sees even greater government debt and mounting fiscal pressures in the coming decades. Federal debt held by the public has reached 77 percent of GDP, the highest level since shortly after World War II. The budget office projects that under current law, that debt would rise to 89 percent of GDP in 2027 and 150 percent in 2047, which would be the highest in the nation’s history. This year’s projection shows federal debt in 2047 growing by 5 percent of GDP more than the budget office projected last year.
Such high and rising debt, CBO warns, would have serious budgetary consequences and dampen economic growth. It says high levels of public debt would reduce national savings and income, increase the government’s interest costs, and increase the likelihood of a fiscal crisis. In addition, the nation would likely find it more difficult to meet new and unforeseen challenges.
“With the deficit already projected to rise sharply in the coming decade,” Bixby said, “elected officials in Washington can’t afford to become complacent about rising debt. The last thing they should be doing today is pursuing new tax cuts and spending plans without credible plans to pay for them. Even simply paying for new proposals, though, still leaves the debt on an unsustainable path.”
The longer we wait to put the federal budget on a sustainable course, the more difficult that task will be. According to the budget office, just keeping the debt-to-GDP ratio from rising above its current level would require spending cuts and/or tax increases totaling 1.9 percent of GDP in every year through 2047. That would amount to $380 billion in 2018.
Waiting until 2023 would require annual changes totaling 2.3 percent of GDP. Delaying until 2028 would require annual changes totaling 2.9 percent of GDP.
“Although the new CBO report focuses on the long term, it makes clear that we cannot afford to wait years before starting to addressing the fiscal challenges we face,” Bixby said. “And we certainly should not be digging ourselves into a deeper hole.”
Media contact: Steve Winn, [email protected]ncordcoalition.org, (703) 254-7828
The Concord Coalition is a nonpartisan, grassroots organization dedicated to fiscal responsibility. Since 1992, Concord has worked to educate the public about the causes and consequences of the federal deficit and debt, and to develop realistic solutions for sustainable budgets. For more fiscal news and analysis, visit concordcoalition.org and follow us on Twitter: @ConcordC