The Congressional Budget Office (CBO) released its updated budget and economic projections today, showing the appearance of a sustainable debt trajectory over the next ten years. However, these projections do not incorporate the costs of policies lawmakers are very likely to continue, nor do they show the long-term costs of an aging population and growing health care costs beyond the ten year window.
Among our major findings based on the report:
- Under current law, debt held by the public will grow from 67.7 percent of GDP ($10.1 trillion) in 2011 to 75.1 percent by 2013 ($11.9 trillion), but will then gradually fall to 62.0 percent ($15.3 trillion) by 2022.
- Due to the Super Committee's failure, current law includes across-the-board spending cuts beginning in 2013. Should policymakers waive this sequester, debt would end up at about 67 percent of GDP in 2022 instead of 62 percent. Under CRFB's Realistic Baseline, which also assumes lawmakers extend expiring tax cuts and doc fixes and draw down war spending, debt would rise to over 86 percent of GDP by 2022.
- The latest current law projections are slightly worse than those made last August, with debt reaching 63 instead of 61 percent of GDP in 2021.
- Revenue projections average 20.4 percent of GDP under current law and 18.3 percent of GDP under CRFB's Realistic Baseline, compared to a historical average of about 18 percent. Spending averages 21.9 percent of GDP under current law and 22.8 percent of GDP under CRFB's Realistic Baseline, compared to a historical average of about 21 percent.
- Deficits average 1.5 percent of GDP each year under current law and 4.5 percent of GDP under CRFB's Realistic Baseline.
Deficits and Debt
CBO projects, under current law, that the deficit will decline substantially as the economy recovers, the Budget Control Act (BCA) sequester implements automatic spending reductions, and a number of temporary measures expire. Specifically, deficits will fall from 8.7 percent of GDP ($1.3 trillion) in 2011, to 7.0 percent of GDP ($1.1 trillion) in 2012, 3.7 percent of GDP ($585 billion) in 2013, and 1.4 percent of GDP ($339 billion) by 2022.
As a result of these deficits, debt will rise from nearly 68 percent of GDP in 2011 to about 75 percent in 2013, but then decline substantially, falling to 63 percent in 2021 and 62 percent of GDP by 2022. By comparison, August's projections showed debt reaching 61 percent of GDP by 2021.
Without the sequester, deficits would be slightly higher at 4.1 percent of GDP ($651 billion) in 2013 and 1.9 percent ($478 billion) in 2022. Under this scenario, debt would reach a high of almost 76 percent of GDP in 2014 before falling to below 67 percent by 2022.
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