The Long-Term Budget Outlook
June 2009
Unless otherwise indicated, the years referred to in this report are calendar years.
Numbers in the text and tables may not add up to totals because of rounding.
Supplementary data underlying CBO’s long-term budget scenarios are posted along with this report at CBO’s Web site.
The figure on the cover shows federal debt held by the public under the Congressional Budget Office’s alternative fiscal scenario and its extended-baseline scenario. The former incorporates some changes in policy that are widely expected to occur and that policymakers have regularly made in the past; the latter adheres closely to current law, following the agency’s baseline budget projections for the first 10 years and then extending the baseline concept for the rest of the projection period.
Preface
This Congressional Budget Office (CBO) report examines the pressures facing the federal budget over the coming decades by presenting the agency’s projections of federal spending and revenues through 2080. Under current laws and policies, rapidly rising health care costs and an aging population will sharply increase federal spending for Medicare, Medicaid, and Social Security. Unless increases in revenues kept pace with escalating spending, or spending growth was sharply reduced, soaring federal debt would weigh heavily on economic output and incomes.
Noah Meyerson wrote Chapter 1, with contributions from Susan Yang and Benjamin Page. Julie Topoleski authored Chapter 2, Noah Meyerson wrote Chapter 3, and Sam Papenfuss authored Chapter 4. David Weiner wrote Chapter 5, with contributions from Kristy Piccinini. Charles Pineles-Mark, Michael Simpson, and Julie Topoleski developed the long-term simulations, and Robert Arnold, Marika Santoro, and Sven Sinclair prepared the macroeconomic simulations. David Weiner coordinated revenue simulations by PaulBurnham, Grant Driessen, Ed Harris, Athiphat Muthitacharoen, Larry Ozanne, and Joshua Shakin. The report was prepared under the supervision of Joyce Manchester. Many others at CBO provided helpful comments and assistance.
Christian Howlett, Leah Mazade, and Sherry Snyder edited and proofread the report, with assistance from Kate Kelly. Maureen Costantino prepared it for publication and designed the cover. Lenny Skutnik printed the initial copies, Linda Schimmel handled the print distribution, and Simone Thomas prepared the electronic version for CBO’s Web site.
Contents
The Federal Budget Outlook Over the Long Run
Alternative Scenarios for the Long-Term Budget Outlook
Returning the Budget to a Sustainable Path
The Outlook for Federal Spending
The Accumulation of Federal Debt
The Economic Impact of Rising Federal Debt
What Are the Costs of Delaying Action on the Budget?
The Long-Term Outlook for Medicare, Medicaid, and Total Health Care Spending
Overview of the U.S. Health Care System
Overview of the Medicare Program
Overview of the Medicaid Program
The Historical Growth of Health Care Spending
Long-Term Projections of Spending for Medicare and Medicaid
Slowing the Growth of Health Care Costs
The Long-Term Outlook for Social Security
The Outlook for Social Security Spending and Revenues
Slowing the Growth of Social Security Spending
The Long-Term Outlook for Other Federal Spending
The Long-Term Outlook for Revenues
Revenues Over the Past 50 Years
Factors Affecting Future Federal Revenues
Revenue Projections Under CBO’s Long-Term Budget Scenarios
Implications of the Long-Term Revenue Scenarios
Demographic and Economic Assumptions Used in CBO’s Analysis
Changes in CBO’s Long-Term Projections Since December 2007
1-2. Projected Federal Spending and Revenues Under CBO’s Long-Term Budget Scenarios
1-3. Shares of the Growth in Spending for the Three Largest Entitlement Programs
2-1. Medicare Spending for Benefits, by Type of Service, Fiscal Year 2008
2-2. Medicaid Enrollees and Federal Benefit Payments, by Category of Enrollee, Fiscal Year 2008
2-3. Excess Cost Growth in Spending for Health Care
2-4. Assumptions About Excess Cost Growth in Spending for Health Care Over the Long Term
2-5. Summarized Measures for Medicare’s Hospital Insurance Trust Fund
3-1. Summarized Measures for Social Security Under CBO’s Long-Term Budget Scenarios
4-1. Other Federal Spending Under CBO’s Baseline
5-1. Assumptions About Particular Revenue Sources Underlying CBO’s Long-Term Budget Scenarios
5-3. Individual Income and Payroll Taxes as a Share of Income Under CBO’s Long-Term Budget Scenarios
1-1. Federal Revenues and Noninterest Spending, by Category, Under CBO’s Extended-Baseline Scenario
1-2. Federal Revenues and Noninterest Spending, by Category, Under CBO’s Alternative Fiscal Scenario
1-3. Federal Debt Held by the Public Under CBO’s Long-Term Budget Scenarios
2-1. Total Spending for Health Care Under CBO’s Extended-Baseline Scenario
2-2.Total Health and Nonhealth Spending Per Capita Under CBO’s Extended-Baseline Scenario
3-1. Spending for Social Security, 1962 to 2080
3-2. Distribution of Social Security Beneficiaries, by Type of Benefits Received, April 2009
3-3. The Population Age 65 or Older as a Percentage of the Population Ages 20 to 64, 1962 to 2080
5-1. Total Federal Revenues Under CBO’s Long-Term Budget Scenarios
5-2. Revenues, by Source, Fiscal Years 1953 to 2008
5-3. Individual Income Tax Revenues Under Alternative Scenarios
5-5. Revenues, by Source, Under CBO’s Long-Term Budget Scenarios
5-6. The Impact of the Alternative Minimum Tax Under CBO’s Extended-Baseline Scenario
B-1. Revenues and Spending Excluding Interest Under CBO’s Extended-Baseline Scenario
B-2. Federal Debt Held by the Public Under CBO’s Extended-Baseline Scenario
B-3. Revenues and Spending Excluding Interest Under CBO’s Alternative Fiscal Scenario
B-4. Federal Debt Held by the Public Under CBO’s Alternative Fiscal Scenario
B-5. Total Spending for Health Care Under CBO’s Extended-Baseline Scenario
1-1. Calculating the Fiscal Gap
1-3. Why Is Federal Debt Held by the Public Important?
4-1. Spending Related to the Recession and the Wars in Iraq and Afghanistan
