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The Long-Term Budget Outlook
  December 2003  


Cover Graphic
Artville/GettyImages



Notes

Numbers in the text and tables of this report may not add up to totals because of rounding.

Supplemental data are available in Excel for projected long-term spending and revenues, year by year, under the six long-term budget scenarios described in this report, as well as for the economic factors underlying the scenarios. Supplemental Data





                
Preface

This Congressional Budget Office (CBO) report extends previous long-term analyses by CBO, examining pressures on the federal budget over the coming decades and the kinds of policy choices that lawmakers face as they consider ways to alleviate those pressures. If current policies continue, rapidly rising health care costs and an aging population will sharply increase federal spending for entitlement programs, such as Social Security, Medicare, and Medicaid. This report presents illustrative scenarios for federal spending and revenues through 2050 and describes the implications of those scenarios for the economy. In accordance with CBO's mandate to provide objective and impartial analysis, this document contains no recommendations.

Paul Cullinan coordinated the report and wrote major sections, as did Douglas Hamilton, Noah Meyerson, David Torregrosa, David Weiner, and Thomas Woodward. Shinichi Nishiyama, Michael Simpson, and David Weiner provided the simulations, and Tom Bradley, Michael Carson, Robert Dennis, Jeanne De Sa, Lyle Nelson, Eric Rollins, and Julie Topoleski made valuable contributions to the analysis. Many others at CBO provided helpful comments and assistance.

Christian Spoor, Leah Mazade, and John Skeen edited the manuscript, and Christine Bogusz proofread it. Rae Wiseman prepared drafts of the chapters. Christian Spoor and Sharon Corbin-Jallow prepared the report for publication, and Maureen Costantino produced the cover. Lenny Skutnik printed the initial copies of the report, and Annette Kalicki prepared the electronic versions for CBO's Web site.

Douglas Holtz-Eakin
Director
December 2003




CONTENTS


  Executive Summary
   
1  Economic and Fiscal Implications of Federal Budgetary Choices Over the Long Run
      The Outlook for Federal Spending
      The Outlook for Revenues
      Alternative Scenarios for the Budget
      The Economic Effects of Growing Federal Debt
   
2  The Long-Term Outlook for Social Security
      The Outlook for Social Security Spending
      How Social Security Functions
      Options for Slowing the Growth of Social Security Spending
   
3  The Long-Term Outlook for Medicare and Medicaid
      Background on Medicare
      Background on Medicaid
      Growth in the Programs' Costs
      Options for Slowing Spending Growth
   
4  The Long-Term Outlook for Other Federal Spending
      Discretionary Spending
      Other Mandatory Spending
   
5  The Long-Term Outlook for Revenues
      The Past 50 Years
      Potential Futures for Federal Revenues
      Illustrative Revenue Paths
   
  Appendix
Details of the Long-Term Budget Scenarios


Tables
   
1-1.  Alternative Long-Term Paths for Primary Spending
1-2.  Projected Long-Term Spending Under Various Scenarios
2-1.  The Increase in the Normal Retirement Age Under Current Law and an Illustrative Option
3-1.  Medicare Spending by Type of Service, Fiscal Year 2003
3-2.  Distribution of Medicaid Enrollees and Benefit Payments by Eligibility Category, 2000
A-1.  Assumptions Underlying CBO's Long-Term Budget Scenarios
   
Figures
   
1-1.  Total Federal Spending and Revenues Under Six Long-Term Budget Scenarios
1-2.  Federal Debt Held by the Public Under CBO's Long-Term Budget Scenarios
1-3.  Federal Debt as a Percentage of GDP, 1790-2002
2-1.  Spending for Social Security
2-2.  The Population Age 65 or Older as a Percentage of the Population Ages 20 to 64
2-3.  Federal Spending Under Illustrative Options for Slowing the Growth of Social Security
3-1.  Total Federal Spending for Medicare and Medicaid Under Different Assumptions About Excess Cost Growth
3-2.  Sources of Medicare Cost Growth
4-1.  Discretionary Spending
4-2.  Mandatory Spending Other Than for Social Security, Medicare, and Medicaid
5-1.  Sources of Federal Revenues over the Past 50 Years
5-2.  Total Federal Revenues Under Alternative Paths, 2003 to 2050
5-3.  Individual Income Tax Liabilities Under Current Law or with a Permanent Extension of EGTRRA and JGTRRA, 2003 to 2050
5-4.  Individual Income Tax Liabilities Under Current Law or with the AMT Modified, 2003 to 2050
5-5.  Individual Income Tax Liabilities Under Three Policy Alternatives, 2003-2050
5-6.  The AMT's Impact on Individual Income Tax Liabilities Under Current Law, 2003 to 2050
5-7.  Individual Income Taxes and Payroll Taxes Under the Current-Law and Historical-Average Scenarios, 2003-2050
A-1.  Social Security Spending Under CBO's Long-Term Budget Scenarios
A-2.  Medicare Spending Under CBO's Long-Term Budget Scenarios
A-3.  Federal Medicaid Spending Under CBO's Long-Term Budget Scenarios
A-4.  Defense Spending Under CBO's Long-Term Budget Scenarios
A-5.  Other Federal Spending Under CBO's Long-Term Budget Scenarios
A-6.  Federal Interest Spending Under CBO's Long-Term Budget Scenarios
A-7.  Personal Tax Revenues Under CBO's Long-Term Budget Scenarios
A-8.  Real Gross Domestic Product Under CBO's Long-Term Budget Scenarios
A-9.  Total Surplus or Deficit Under CBO's Long-Term Budget Scenarios
   
Boxes
   
1-1.  Why Is Federal Debt Held by the Public Important?
1-2.  The Growth of Health Care Costs
1-3.  Other Measures of Fiscal Pressures
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