by Douglas Elmendorf,CBO Budget Director
Today I had the opportunity to testify before the Senate Budget Committee about CBO’s most recent analysis of the long-term budget outlook.
Under current law,the federal budget is on an unsustainable path,because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections,rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly,the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving,leading to more borrowing from abroad and less domestic investment,which in turn would depress economic growth in the United States. Over time,accumulating debt would cause substantial harm to the economy. The following chart shows our projection of federal debt relative to GDP under the two scenarios we modeled.
Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP,decreasing projected spending sharply,or some combination of the two.
Measured relative to GDP,almost all of the projected growth in federal spending other than interest payments on the debt stems from the three largest entitlement programs—Medicare,Medicaid,and Social Security. For decades,spending on Medicare and Medicaid has been growing faster than the economy. CBO projects that if current laws do not change,federal spending on Medicare and Medicaid combined will grow from roughly 5 percent of GDP today to almost 10 percent by 2035. By 2080,the government would be spending almost as much,as a share of the economy,on just its two major health care programs as it has spent on all of its programs and services in recent years.