Has the Fundamental Federal Budgetary Challenge Been Addressed?
I gave a presentation about the federal budget this afternoon. My conclusion, as summarized in the last of my slides, is straightforward.
The federal budget deficit has fallen faster than we expected a few years ago, and projected deficits have been reduced relative to what we expected would occur if the policies in place at that time were continued. However, relative to the size of the economy, debt remains historically high and is on an upward trajectory in the second half of the coming decade.
The fundamental federal budgetary challenge has hardly been addressed: The largest federal programs are becoming much more expensive because of the retirement of the baby boomers and the rising costs of health care, so we need to cut back on those programs, increase tax revenue to pay for them, or take some combination of those actions. Those choices are difficult, and the decision as to when we should implement such changes is complicated by the negative effects they could have on the economy if they took effect while it is still fairly weak.
(A technical note: In July 2013, the Bureau of Economic Analysis revised upward the historical values for GDP. CBO has extrapolated from those revisions so that its baseline projections of GDP reflect them. Although our projections of revenues, outlays, deficits, and debt over the 2013-2023 period have not changed since they were issued in May, those amounts measured as a percentage of GDP are now lower as a result of the revisions to GDP. My talk today incorporates those new figures.)