NEW YORK (MainStreet) The Congressional Budget Office (CBO) release of the 2013 Long-Term Budget Outlook last month does not bode well for those who want to see decreasing deficits. The CBO projects spending for federal healthcare programs will "rise substantially" in relation to the Gross Domestic Product (GDP)."
The CBO predicts that budget deficits will decline during the next few years. After this initial decline, though, the organization calculates there will be an increase because of greater interest expense and more spending for entitlement programs. The CBO says Social Security, Medicare, Medicaid, the Children's Health Insurance Program (CHIP) and the health insurance exchanges subsidies beginning in 2014 will drive the additional spending.
Specifically, CBO predicts that publicly held federal debt would decline to 68% of GDP by 2018. This is because of economic policies enacted during the 2007 to 2009 recession that have caused the deficit to be the "smallest size since 2008," which is roughly 4% of GDP. Debt-to-GDP ratio peaked in 2009 at 10%.
If these policies remain in effect the deficit is predicted to shrink to 2% of GDP by 2015. This would lead to federal debt, held by the public, declining to 68% of GDP by 2018. But then the deficits would rebound, presuming current law remains the same, because interest costs will increase as interest rates rise, and there will be growing spending because of growing Medicare populations, rising healthcare costs and emerging subsidies for health insurance under the Affordable Care Act.
By 2023, the CBO says, "the budget deficit would grow to almost 3.5% of GDP under current law, and federal debt held by the public would equal 71% of GDP and would be on an upward trajectory."
The CBO further states that the "gap between federal spending and revenues would widen steadily after 2015 under the assumptions of the extended baseline. By 2038, the deficit would be 6.5% of GDP, larger than in any year between 1947 and 2008, and federal debt held by the public would reach 100% of GDP, more than in any year except 1945 and 1946. With such large deficits, federal debt would be growing faster than GDP, a path that would ultimately be unsustainable."