CBO Budget and Economic Outlook for 2014-2024
This morning the Congressional Budget Office (CBO) released its updated budget outlook for fiscal years 2014-2024. This report includes new projections on the country’s deficits as well as updated estimates of the effects of the president’s new healthcare law. While topline deficit numbers are improving in the short run, continuing on our current path will push deficits over $1 trillion starting in 2022. The report also predicts that further deficit reductions under the President Obama are highly unlikely. Treasury Secretary Jack Lew separately noted that while recent short-term improvements add time, they do nothing to address the “larger, structural problems” in Washington.
CBO’S BASELINE BUDGET PROJECTIONS
Last May, the CBO predicted a $560 billion deficit for fiscal year 2014, or 3.4 percent of Gross Domestic Product (GDP). The new report improves this forecast slightly and predicts a new budget shortfall of $514 billion for fiscal year 2014, or 3 percent of the nation’s economic output. This new estimate represents about the average annual deficit as a percentage of GDP seen over the past 40 years. While the budget shortfall is improving for this year, deficits are predicted to rise again in the coming years. In May, the CBO predicted deficits for fiscal years 2015, ’16 and ’17 to be $378 billon, $432 billion and $482 billion, respectively. New numbers show deficits will increase from the previous CBO estimate by at least $100 billion for each year.
CBO’S LONG TERM PROJECTIONS
Beyond 2017, the CBO projects deficits will continue to grow, rising to over $1 trillion by 2022 and reaching $1.074 trillion by 2024. The report shows that over the next decade (FY2015-2024), the government will accumulate close to $8 trillion in deficits. Federal debt held by the public is expected to reach 79.2 percent of GDP by 2024, higher than the CBO’s previous forecast and “significantly greater relative to GDP than at any time since just after World War II.” Beyond 2017, the CBO also predicts economic growth to slow to a pace that is “well below the average seen over the past several decades.”
As compared previous set of baseline projections released in May of 2013, CBO has added $1.0 trillion to its baseline projection of the cumulative deficit from 2014 through 2023 due mainly to slower anticipated real GDP growth and lower inflation.
The White House has suggested that the Affordable Care Act has been a major contributor to the recent slowdown in healthcare spending, but CBO notes that whether the ACA has or will reduce health care costs in the private sector is hard to determine. In a separate report, actuaries from the Centers for Medicare and Medicaid Services suggest that in fact the slowdown in healthcare spending could be attributed to residual effects from the recent recession and not the president’s healthcare law. Aaron Catline, a deputy director for National Health Statistics at the Center For Medicare Services (CMS) recently agreed noting, “It is consistent with what we have seen in past recessionary periods.” The CBO projects that spending for major healthcare programs will increase to $1.643 trillion by 2024, rising to over 6 percent of GDP.
IMPACTS OF THE AFFORDABLE CARE ACT
According to the new CBO predictions, the Affordable Care Act’s (ACA) coverage provisions will cost the government $41 billion in 2014, and roughly $1.5 trillion over the next decade. In addition, the ACA is predicted to slow economic growth and lead to a reduction in full-time-equivalent employment by about 2 million in 2017, growing to 2.5 million in 2024. This represents a reduction in the total number of hours worked by 1.5 percent to 2.0 percent over the 2017-2024 period. Previous estimates suggested a reduction of 800,000 full-time workers.
The new report also notes that “in light of technical problems that impeded many people’s enrollment in exchanges in the first months of the open enrollment period, CBO and JCT have reduced their estimate of enrollment for the current year from 7 million to 6 million people.”