This morning I testified before the Senate Budget Committee on CBO’s latest long-term projections—released yesterday in The 2015 Long-Term Budget Outlook. To get a quick overview of the report, you can take a look at The 2015 Long-Term Budget Outlook in 25 Slides. My remarks at the hearing, as well as the report and the slides, note the following conclusion of CBO’s analysis.
If current laws governing taxes and spending remain in place, deficits and federal debt held by the public would remain roughly stable in the near term, reflecting the anticipated further strengthening of the economy and constraints on federal spending built into law. But the outlook for the budget would steadily worsen over the long term.
To put the federal budget on a sustainable path, lawmakers would have to make major changes to tax policies, spending policies, or both—by reducing spending for large benefit programs below the projected amounts, letting revenues rise more than they would under current law, or adopting some combination of those approaches. The size of such changes would depend on the amount of federal debt that lawmakers considered appropriate.
For example, if lawmakers set a goal for 2040 of reducing debt held by the public to the average percentage of gross domestic product (GDP) seen over the past 50 years (38 percent), one approach would be to increase revenues and cut noninterest spending, relative to current law, by a total of 2.6 percent of GDP in each year beginning in 2016. That would come to about $480 billion, or $1,450 person, in 2016. Maintaining debt at its current level, which is very high by historical standards, would require smaller changes—equivalent to 1.1 percent of GDP in each year.
The figure below illustrates those two potential goals for debt and the magnitudes of some policies that would be necessary to meet those goals. Of course, other goals and other patterns for the timing of savings are possible as well.
Keith Hall is CBO’s Director.