Presentation by Keith Hall, CBO Director, at the Forecasters Club of New York.
In 2016, the federal budget deficit will increase, in relation to the size of the economy, for the first time since 2009, according to the Congressional Budget Office’s estimates. If current laws generally remained unchanged, the deficit would grow over the next 10 years, and by 2026 it would be considerably larger than its average over the past 50 years, CBO projects. Debt held by the public would also grow significantly from its already high level.
To analyze the state of the budget in the long term, CBO has extrapolated its 10-year baseline projections an additional two decades. If current laws governing taxes and spending remain in place, the outlook for the budget would steadily worsen over the long term, with revenues falling well short of spending. CBO is in the process of completing a detailed update of its long-term projections; but in January the agency did a simplified update. On that basis, budget deficits are projected to rise steadily and federal debt held by the public is projected to exceed 130 percent of GDP by 2040.
To put the federal budget on a sustainable path for the long term, 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.