Insight

CBO’s Budget and Economic Outlook

The Congressional Budget Office (CBO) today released its January “baseline” outlook formally known as The Budget and Economic Outlook: 2015 to 2025. It contains CBO’s economic projections and the budget outlook that happens under current law; that is if the budget remains on autopilot.

Here are the key takeaways:

  • The budget was unsustainable and remains unsustainable. There are few revisions from the last budget outlook – they average under $18 billion per year over the next ten years.
  • Ten years from now, deficits are assumed to be over $1 trillion ($1,088 billion) with $827 billion of that due to interest costs. The U.S. is entering into a debt spiral in which it borrows to pay off the interest on previous borrowing.
  • Debt in the hands of the public rises by $8.2 trillion over 10 years – from $13.4 trillion to $21.6 trillion – and is rising as a fraction of GDP.
  • Debt and deficit increases occur despite rising revenues (including as a share of GDP) and unrealistically low discretionary spending, fueled by the large increases in mandatory (“entitlement”) spending.
  • CBO has reduced its estimated growth 2014-2018 from 2.7 percent to 2.5 percent. It is betting that household spending will be considerably stronger in 2015 to make even that projection hold up.
  • Once again CBO has marked down the long run growth potential of the United States; this time to 2.2 percent.

The CBO outlook is a reminder that recent declines in the deficit are not a tribute to policy, but rather to a resilient private sector that has risen from the depths of the Great Recession. To the extent that policy has been involved, it has been a mistaken focus on discretionary spending caps at a time when mandatory spending is exploding.

Disclaimer