March 20, 2012
At the request of the Chairman of the House Budget Committee, Congressman Paul Ryan, CBO has calculated the long-term budgetary impact of paths for federal revenues and spending specified by the Chairman and his staff.
The calculations presented here represent CBO’s assessment of how the specified paths would alter the trajectories of federal debt, revenues, spending, and economic output relative to the trajectories under two scenarios that CBO has analyzed previously. The calculations do not represent a cost estimate for legislation or an analysis of the effects of any given policies. In particular, CBO has not considered whether the specified paths are consistent with the policy proposals or budget figures released today by Chairman Ryan as part of his proposed budget resolution.
What are the Specified Paths for Revenues and Spending and What Would be the Budgetary Impact of those Paths?
The amounts of revenues and spending to be used in these calculations for 2012 through 2022 were provided by Chairman Ryan and his staff. The amounts for 2023 through 2050 were calculated by CBO on the basis of growth rates, percentages of gross domestic product (GDP), or other formulas specified by Chairman Ryan and his staff. For all years, the Chairman specified that there would be no spending for subsidies to purchase health insurance through new exchanges established under the Affordable Care Act. CBO calculates that, under the specified paths, federal revenues and spending would evolve as follows:
- Revenues—from 15½ percent of GDP in 2011 to 19 percent in both 2030 and 2050;
- Medicare—from 3¼ percent of GDP in 2011 to 4¼ percent in 2030 and 4¾ percent in 2050;
- Medicaid and the Children’s Health Insurance Program (CHIP)—from 2 percent of GDP in 2011 to 1¼ percent in 2030 and 1 percent in 2050;
- Social Security—from 4¾ percent of GDP in 2011 to 6 percent in both 2030 and 2050; and
- Other mandatory spending and all discretionary spending—from 12½ percent of GDP in 2011 to 5¾ percent in 2030 and 3¾ percent in 2050.
Under those specified paths for revenues and spending, federal debt held by the public would be 53 percent of GDP at the end of fiscal year 2030 and 10 percent at the end of fiscal year 2050.
How Do Those Figures Compare to Calculations Under Scenarios that CBO Analyzed Previously?
Those figures are compared in this report with updated long-term calculations for two budget scenarios examined in CBO’s 2011 Long-Term Budget Outlook; both of those scenarios represent extensions of current laws or policies in different forms. Under those scenarios, federal spending in 2050 would be:
- Close to 7 percent of GDP for Medicare (including offsetting receipts);
- More than 4 percent of GDP for Medicaid, CHIP, and subsidies to be provided through insurance exchanges;
- Six percent of GDP for Social Security; and
- About 8 percent of GDP for other mandatory spending and all discretionary spending.
Under one of those scenarios, revenues would rise to about 26 percent of GDP in 2050, and debt held by the public would decline to 40 percent of GDP in that year; under the other of those scenarios, in 2050, revenues would be 18½ percent of GDP, and debt held by the public more than 200 percent of GDP.
Higher debt tends to imply lower output and income in the long run than does lower debt, because increased government borrowing generally draws money away from, or “crowds out,” private investment in productive capital. As a result, the debt that would occur under the paths specified by the Chairman and his staff would lead to higher national income over the long term than would occur with the higher amounts of debt under the other two scenarios.
The specified paths of revenues and spending would change the federal budget in various ways that differ significantly from historical trends and current policies. The consequences of those changes would depend on both the specific policies that were implemented to generate those paths of revenues and spending and the ways in which the nation’s health care and health insurance systems and other parts of the economy evolved in response to those policies.
This report was prepared by Joyce Manchester and Julie Topoleski of CBO’s Health and Human Resources Division.