Wednesday, July 20, 2016

Another Unsurprisingly Dismal CBO Budget Projection

Last week the CBO issued its annual Long-Term Budget Outlook. The unsurprising verdict:
If current laws governing taxes and spending did not change, the United States would face steadily increasing federal budget deficits and debt over the next 30 years, according to projections by the Congressional Budget Office. Federal debt held by the public, which was equal to 39 percent of gross domestic product (GDP) at the end of fiscal year 2008, has already risen to 75 percent of GDP in the wake of a financial crisis and a recession. In CBO’s projections, that debt rises to 86 percent of GDP in 2026 and to 141 percent in 2046—exceeding the historical peak of 106 percent that occurred just after World War II. The prospect of such large debt poses substantial risks for the nation and presents policymakers with significant challenges.



Especially striking is the fact that in 20 years, the primary sources of mandatory spendingSocial Security, healthcare entitlements (including Obamacare, Medicare, and Medicaid), and debt interestwill consume virtually all of federal revenue. That means that after those three expenditures, every penny spent on defense, education, criminal justice, etc. will contribute to the deficit.

Also of note is that the spending projectionsdismal as they aredon't project any federal bailouts of the states. That may well be apt, as Washington may choose to force the bankrupt states to respond to their rapidly approaching fiscal day of reckoning with ferocious austerity. But with state unfunded pension liabilities somewhere between 1 and 3 trillion dollars, on top of nearly a trillion dollar of currently held public state debt, the bailout money may well soon be flowing.


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