Highlights of CBO’s 2018 Long-Term Budget Outlook

Today, the Congressional Budget Office (CBO) released its latest Long-term fiscal outlook and projected that the country’s debts would essentially double as a share of the economy by 2048, reaching 152 percent of gross domestic product (GDP). Even though the CBO has forecast higher deficits over the past year, the long-term outlook for this year is remarkably similar to that of last year. This projection reaffirms long-standing demographic and economic trends and highlights the continued will of policymakers to avoid attacking or, in some cases, worsening the country’s finances.

Higher borrowing costs are associated with higher borrowing needs, which will overshadow other federal priorities (Figure 2). While the only major difference between this year’s projection and that of last year is the passage of time, despite the appetite of policymakers to contribute to the problem, it is important to recognize that waiting to meet the debt challenge American is expensive. As shown in Figure 3, the longer policymakers wait to slow and reverse the country’s debt build-up, the more tax hikes or spending cuts (or a combination of both) needed to accomplish this consolidation become larger and larger. more painful. Already, the amount of fiscal consolidation needed simply to stabilize the country’s historically high debt level at 78% of GDP is staggering. Simply keeping the debt at 78% of GDP by 2048 would force lawmakers to adopt 1.9% of GDP as a reduction in the annual deficit, which would be 400 billion dollars in 2019. Remember that Congress recently failed to push through an attempt to cut spending by just $ 1.1 billion.[1]

Figure 1

Compared to CBO’s latest Long Term Outlook, the projected debt in public hands is largely unchanged over the long term. In the medium term, projected deficits are higher due to recently adopted fiscal policies, but in the longer term, the debt outlook remains determined by three main factors: demographics, which has not changed since the last fiscal outlook long-term ; the country’s main compensation programs, which also remained unchanged; and growing interest in the country’s growing debt portfolio.

Figure 2

Today’s long-term outlook reaffirms a trend in the country’s finances: Debt servicing costs crowd out other federal spending and will outpace all other discretionary programs – from defense and education to infrastructure – handsets.

figure 3

The CBO also calculates what is essentially the cost of postponing the necessary fiscal consolidation. To maintain the debt held by the public as a percentage of GDP at current levels (78% of GDP) in 2048, a annual reduction (compared to the CBO projections) of the primary deficit of 1.9% of annual GDP if it is started next year, which amounts to 400 billion dollars in 2019. This reduction could be achieved by an increase in income, a decrease in expenses, or both, excluding net interest. Achieving the same level of debt in 2048 would require much more fiscal consolidation if that consolidation is delayed until 2024 or 2029. The same story is true if the United States were to bring its 2047 debt level back to normal. 41-year history over 50 years. percentage of GDP. This would require annual savings of 30% if it were launched in 2019, but 4.6% if it were launched in 2029. In either case, it would be difficult to reduce the deficit needed to meet enough debt targets. modest in 2048 if started now, but would be around 50%. percent more painful if delayed for 10 years.

The current federal fiscal path promises higher debt with reduced productive public and private investment. This trajectory reflects the growth of federal transfer programs and consequently greater borrowing needs, all financed by a lower standard of living for future generations. In the absence of reform, these trends become more and more intractable and will require significant budgetary adjustments to deal with them.

[1] https://www.americanactionforum.org/insight/the-house-dabbled-in-governing-the-senate-took-a-pass/

About Lucille Thompson

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