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CBO Reveals Magnitude of Reform Needed for Sustainable Fiscal Future

Posted By Stephen Keen On June 30, 2010 @ 1:00 pm In Economics | Comments Disabled

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The Congressional Budget Office (CBO) released their annual Long-Term Budget Outlook [2] today, and the updated projections—which include the effects of Obamacare—paint a grim picture. If Obamacare really did bend the cost curve down, CBO shows little evidence of it in this report.

In fact, CBO openly admits [3] that “projections understate the severity of the long-term budget problem because they do not incorporate the significant negative effects that accumulating substantial amounts of additional federal debt would have on the economy.”

Here are a few highlights:

  • Debt held by the public will reach 62 percent of Gross Domestic Product (GDP) by the end of this year — this is the highest percentage since 1951.
  • Under current law, federal spending on major mandatory health care programs will grow from approximately 5 percent of GDP today to about 10 percent in 2035, which includes ALL effects of the Obamacare legislation.
  • Although CBO projects the Obamacare to reduce federal budget deficits over the first 10 years, it is expected to increase federal spending in the next 10 years and for most of the next decade. By 2030 CBO admits [3] Obamacare will only “slightly” reduce federal spending for health care.
  • Social Security rises from 4.8 percent of GDP today to 6.2 percent in 2035.
  • Medicare rises to 7 percent of GDP under a current policy baseline.
  • Medicaid, CHIP, and exchange subsides rise from 1.9 percent of GDP today to 3.9 percent in 2035 under current policy.
  • Spending on the major mandatory health care programs and Social Security will grow from roughly 10 percent of GDP today to about 16 percent of GDP 25 years from now under current law.
  • Under current policy, debt held by the public reaches 87 percent of GDP by 2020. Afterward CBO says [3], “the growing imbalance between revenues and noninterest spending, combined with spiraling interest payments, would swiftly push debt to unsustainable levels,” reaching 185 percent in 2035.
  • The deficit is projected to reach 15.9 percent in 2035 under current policy.

The nation is currently on an unsustainable path, and to avoid economic catastrophe significant reforms must be implemented. This report should alert us all to the magnitude of reductions in federal spending we must make to return the nation to sustainability.


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URL to article: http://blog.heritage.org/2010/06/30/cbo-reveals-magnitude-of-reform-needed-for-sustainable-fiscal-future/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/money_stacks0902114.jpg

[2] their annual Long-Term Budget Outlook: http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

[3] CBO openly admits: http://cboblog.cbo.gov/?p=1112

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