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  • Budget Outlook Getting Worse, CBO Report Shows

    The figures released today by the Congressional Budget Office (CBO) once again reflect the magnitude of the federal government’s fiscal problem and the urgent need for Congress and the President to address it. Some key points:

    • The 2012 deficit, projected at $1.079 trillion, represents the fourth consecutive year of deficits exceeding $1 trillion.
    • Debt held by the public today is $11.2 trillion, or 72.5 percent of gross domestic product (GDP)—nearly three-fourths of total economic output.
    • This year’s $3.6 trillion in spending is 23.2 percent of GDP—nearly one-fourth the size of the economy and well above the average spending level of 20 percent of GDP.

    For the 10 years covered by the report (2013 through 2022), CBO’s conventional figures vastly understate the magnitude of the problem, because CBO employs several unrealistic assumptions in its estimates. Among them: It assumes the Bush tax cuts will expire at the end of this year as scheduled, and the Alternative Minimum Tax will broaden to ensnare a greater number of taxpayers. It also assumes Congress will allow a sharp reduction in payments to Medicare physicians.

    These assumptions are highly unlikely. Consequently, CBO developed an alternative fiscal scenario based on more realistic assumptions and therefore closer to the likely fiscal outcomes over the next 10 years. CBO’s alternative projections include the following:

    • For 2012, spending is roughly equal to the conventional estimate, at $3.6 trillion.
    • Spending rises from 23 percent of GDP today to 24.4 percent in 2022. Spending has reached this level only two other times since World War II.
    • Deficits through the decade never fall below 4.9 percent of GDP, and the lowest deficit in the period is $899 billion, reached in 2015. After that, deficits rise again, reaching $1.5 trillion in 2022, or 6.1 percent of GDP.
    • Debt held by the public grows through the 10-year period and reaches a chilling $23.2 trillion (94.2 percent of GDP), more than twice this year’s debt of $11.3 trillion.
    • Although revenues are low now due to economic weakness, they will rise to 18 percent of GDP, their historical average, by 2017—and continue to rise from there.

    Either scenario demonstrates an urgent need for action by Congress or the President to curb the government’s runaway spending.

    The Entitlement Problem

    The core of the problem is spending. In CBO’s more realistic assumptions, spending continues growing at unsustainable rates, rising from $3.6 trillion this year to $6 trillion in 2022, or 24.4 percent of economic output. Tax revenues will rise above their historical levels—even with the Bush tax cuts made permanent. Thus, it is this relentless spending that results in continuing deficits near or above $1 trillion throughout the decade.

    The principal drivers of this spending are the entitlement programs, especially Medicare, Medicaid, and Social Security. These three programs alone will cost $1.592 trillion this year, about 44 percent of total federal spending. By 2022, if they are not reformed, these programs will total $2.991 trillion, almost half the budget (49.8 percent).

    Obamacare added even more entitlement spending. The health insurance subsidies and exchanges in the program add a whopping $645 billion in spending over the next 10 years, and his expansions of the State Children’s Health Insurance Program add another $78 billion.

    These figures are further evidence that Congress and the President must begin restructuring these programs soon. With every month of delay, the spending problem grows larger, and the actions needed to fix it become more wrenching.

    Reckless Defense Cuts Keep Mounting

    CBO’s report also reflects the devastating spending cuts that still hang over national defense. The Budget Control Act (BCA)—a product of last year’s debt ceiling debate—resulted in two rounds of planned defense reductions. The first comes from spending caps, which reduce spending by $840 billion through 2021. Depending on how those reductions are distributed among discretionary programs, they could reduce defense resources over the period by somewhere between $445 billion (6.8 percent) and $825 billion (13.2 percent).

    Second, because the BCA-created “super committee” failed to propose any further spending reductions, the BCA imposes a crude, automatic spending cut, called a “sequester,”  totaling $1.2 trillion from 2013 through 2021. Of that amount, $492 billion is to come from defense.

    These reckless reductions are further crippling military readiness. Congress should rewrite this sequester promptly to find the $1.2 trillion in savings elsewhere, so that national security is not devastated. In the end, CBO’s report today is more of the same: The nation has a spending and debt crisis, and it is getting worse.

    Posted in Featured [slideshow_deploy]

    11 Responses to Budget Outlook Getting Worse, CBO Report Shows

    1. Bob Pace says:

      Doesn't anyone in Washington have the, "what it takes" to stop the spending. Any school kid knows that if you don't have the money you can't spend it.

    2. stroud says:

      It is amazing & disappointing how many Americans know nothing about what is happening to worsen the economy & if they get any information at all they listen to the "lame stream media" which is so liberal it runs interference for Obama as to what he is up to. As the saying goes "ignorance is bliss" until they're out of a job, losing their house or even worse. Then the "lame stream" tells them it's the Republicans fault when the Republicans have tried & tried to do constructive things to help the country & been stalled by the Senate which the political left controls, at least for now, in the form of Harry Reid. Unless some major changes happen next November we can expect things to only get worse.

    3. Brad - Detroit says:

      Good thing that Obama didn't bring this up in his State of the Union speech, because it's really not that important . . .

    4. Slick says:

      I suppose this TRUTH has totally escaped the attention of the POTHUS and his minions since TODAY he proudly announced that he has a "new" plan to "save" the housing industry!!!! He will "order the banks" to refinance all loans for all homeowners who are "current" and reduce their payments by literally THOUSANDS of dollars per year. What he didn't say was that the entity guaranteeing the loan will be the Federal Government. If those homeowners default, then the government will own more personal property than they already do. WHO do you want to buy your next house from???? You may not have a choice if the government ends up owning ALL the property in the United States!!!! How many times do you have to hear the same lie before you believe it to be the truth????

    5. Leslie says:

      The Congressmen should have a freeze on their incomes, and be forced to pay into Social Security, as every other American Citizen does.

      • Mark says:

        You need to check your facts before posting. Members of Congress DO pay into Social Security. They also contribute to their health care coverage, and their Congressional pensions. The contribution rates compare to the better corporate plans available. As far as Congressional compensation, the argument for freezing pay in 2012 is a good one – just as Congressional pay was frozen since January 1, 2009. . There is room for constructive debate as to whether $174K for the ordinary members of Congress is truly competitive in this day and age. We might just get more qualified, better educated, and more functional members of Congress if the pay was competitive with private industry. Many middle managers and certainly many, many senior managers in corporations make over $174K per year.

      • Scott says:

        I think everyone in Washington including the presendent should get a maximum of 100k per year and NO benefits unless they pay into the SS system and recieve the same health coverage they are forcing down our necks.

    6. Stirling says:

      All this is due to Keynesian economics http://en.wikipedia.org/wiki/Keynesian_economics (which is what the current administration belives in).. v.s Austrian School of economics http://en.wikipedia.org/wiki/Austrian_School (what we were used to before Obama). This president is just following a debt funded policy which is inherant with the Keynesian model.. The CBO is just confirming what happens when it's implemented.. It's a shame that we haven't learned from the past that the consequences are the same not matter what generation tries to implement it's policies.

    7. mameshki says:

      To stop the spending nonsense in DC, American people should stop paying taxes, stop work, boycott every thing then see if the government gets the message. Only then will the American people be able to put their will to term limits and reworked tax code, otherwise the stinking political elites will enjoy the free ride.

    8. Dennis Pine says:

      To Whom: I just "found" this site. I only read a few of the old comments. It strikes me that all, anyone, is really doing is "talking" about the problems. No one is actually doing anything "substantive" about them. It seems that we are ALL perfectly willing and able to talk the talk, but we can't or won't "walk the walk". Not a single one of our leaders appears to be willing to take any kind of cut in their "income", so that this whole "house of cards" doesn't come tumbling down. I would be willing to take a 10% cut in my SS benefits, if, and ONLY IF, everyone else, would do the same. If President Obama would take a 10% cut in his overall income (and it is humongous, now), I would find a way to make do, with 90% of what I now get, which isn't much, even now. I know, even, as I speak, that THAT is NOT going to happen, so I am safe, until EVERYTHING goes down the tubes! See "more to come", since this is too long, apparently. DP

    9. Dennis Pine says:

      In addition to my previous comments, I could not help but notice that "Mr." Geithner went on 5 tv talk shows, yesterday, as opposed to "Mr." Boehner going on 1. Does that indicate that Mr. G is 5 times more committed to his ideas and plans for the economy than is Mr. B.? It would seem so! I hope that we don't have to go off of the "cliff" but, if we do, I surely hope that these two "jerks" don't have their "golden" parachutes, in place to soften their landings!!! I also hope and pray that they suffer just as much as the rest of us, do, especially since it is much of what they have being doing or NOT doing that has gotten our country into this gigantic fiscal crisis in the first place. DP

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