The Top 5 Things To Know About The CBO Report with Charts

This morning, the Congressional Budget Office released its annual report on the nation’s long-term budget outlook. Today’s report details a coming fiscal crisis and underscores the urgent need to act now. Here are the five things you need to know about the CBO’s findings:

    1. Debt-To-GDP Ratio Has Doubled In Five Years. According to the CBO, the national debt now totals 73 percent of total annual economic output. Why? Because, “Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946 …” The debt-to-GDP ratio is “ higher than at any point in U.S. history except a brief period around World War II” and is also “ twice the percentage at the end of 2007.”
    2. The Ratio Will Briefly Get Better, But Rise Again Until The Debt And Economy Are Same Size. CBO writes that, if Washington does nothing, “[F]ederal debt held by the public would decline slightly relative to GDP over the next several years … After that, however, growing deficits would ultimately push debt back above its current high level. … [F]ederal debt held by the public would reach 100 percent of GDP in 2038, 25 years from now, even without accounting for the harmful effects that growing debt would have on the economy.”
    3. Revenues Aren’t The Problem. On page 63, CBO notes revenues will increase to above the national average over the next several years. The CBO says, “AFederal revenues are projected to reach 19.7 percent of GDP by 2038 and to continue rising thereafter. By comparison, revenues have averaged 17.4 percent of GDP over the past 40 years. Without significant changes in tax law, the tax system in 2038 would be quite different from what it is today: A considerably larger share of each additional dollar of income earned by households would go to taxes, and households throughout the income distribution would pay a greater share of their total income in taxes than households in similar places in that distribution pay today.”
    4. If Entitlements Aren’t Reformed, They’ll Take Up More Of The Federal Spending Pie. Bankrupting America has repeatedly argued that if lawmakers don’t tackle the nation’s entitlement programs – Social Security, Medicare and Medicaid – they will soon begin to crowd out spending for other priorities. The CBO today confirmed that opinion. According to the CBO, “Federal spending for the major health care programs and Social Security would increase to a total of 14 percent of GDP by 2038, twice the 7 percent average of the past 40 years. In contrast, total spending on everything other than the major health care programs, Social Security, and net interest payments would decline to 7 percent of GDP, well below the 11 percent average of the past 40 years …” 
    5. Debt Has Consequences. The CBO argues, “The high and rising amounts of federal debt held by the public that CBO projects for coming decades under the extended baseline would have significant negative consequences for both the economy and the federal budget. Those consequences include reducing the total amounts of national saving and income; increasing the government’s interest payments, thereby putting more pressure on the rest of the budget; limiting lawmakers’ flexibility to respond to unexpected events; and increasing the likelihood of a fiscal crisis.”

 

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This article was posted to Economy category.

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