• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
Congressional Budget Office
CONGRESSIONAL
 
BUDGET
 
OFFICESECOND
 
 AND
 
D
 
STREETS
,
S
.
 W 
.
 WASHINGTON
,
D
.
C
.
20515
Congressional Budget OfficeCongressional Budget OfficeCongressional Budget Office
 Testimony 
Statement of Douglas W. Elmendorf Director
 The Long-Term Budget Outlook 
before theCommittee on the Budget United States Senate July 16, 2009
This document is embargoed until it is delivered at 9:00 a.m. (EDT) on Thursday, July 16, 2009. The contents may not be published, transmitted, or otherwise communicated by any print, broadcast, or electronic media before that time.
 
CBOChairman Conrad, Senator Gregg, and Members of theCommittee, thank you for inviting me to testify on theCongressional Budget Office’s (CBO’s) most recent anal-ysis of the long-term budget outlook. My statementdescribes the pressures facing the federal budget over thecoming decades by presenting the agency’s current projec-tions of federal spending and revenues through 2080.
1
 Under current law, the federal budget is on an unsustain-able path—meaning that federal debt will continue togrow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscalprojections, rising costs for health care and the aging of the U.S. population will cause federal spending toincrease rapidly under any plausible scenario for currentlaw. Unless revenues increase just as rapidly, the rise inspending will produce growing budget deficits and accu-mulating debt. Keeping deficits and debt from reachinglevels that would cause substantial harm to the economy  would require increasing revenues significantly as a per-centage of gross domestic product (GDP), decreasingprojected spending sharply, or some combination of the two.Measured relative to GDP, almost all of the projectedgrowth in federal spending other than interest paymentson the debt comes from growth in spending on the threelargest entitlement programs—Medicare, Medicaid, andSocial Security. For decades, spending on the federal gov-ernment’s major health care programs, Medicare andMedicaid, has been growing faster than the economy (ashas health care spending in the private sector). CBO proj-ects that if current laws do not change, federal spendingon Medicare and Medicaid combined will grow fromroughly 5 percent of GDP today to almost 10 percent by 2035 and to more than 17 percent by 2080. That projec-tion means that in 2080, without changes in policy, thefederal government would be spending almost as much,as a share of the economy, on just its two major healthcare programs as it has spent on all of its programs andservices in recent years.By CBO’s estimates, the increase in spending for Medi-care and Medicaid as a share of GDP will account for80percent of spending increases for the three entitlementprograms between now and 2035 and 90 percent of spending growth between now and 2080. Thus, reducingoverall government spending relative to what wouldoccur under current fiscal policy would require funda-mental changes in the trajectory of federal health spend-ing. Slowing the growth rate of outlays for Medicare andMedicaid is the central long-term challenge for federalfiscal policy.Under current law, spending on Social Security is alsoprojected to rise over time as a share of GDP, albeit muchless dramatically. CBO projects that Social Security spending will increase from less than 5 percent of GDPtoday to about 6 percent in 2035 and then roughly stabi-lize at that level through 2080. Under the assumptionsused for CBO’s long-term projections, governmentspending on activities other than Medicare, Medicaid,Social Security, and interest on federal debt—activitiessuch as national defense and a wide variety of domesticprograms—is projected to decline or stay roughly stableas a share of GDP in future decades.Federal spending on Medicare, Medicaid, and SocialSecurity will grow relative to the economy both becausehealth care spending per beneficiary is projected toincrease and because the population is aging. Spendingon Medicare and Medicaid will be driven by both factors, while Social Security spending will rise because of thepopulation’s aging. Between now and 2035, aging is pro- jected to make the larger contribution to the growth of spending for those three programs as a share of GDP. After 2035, continued increases in health care spendingper beneficiary are projected to dominate the growth inspending for the three programs.The current recession has little effect on long-term pro- jections of noninterest spending and revenues. But CBOestimates that in fiscal years 2009 and 2010, the federalgovernment will record its largest budget deficits as ashare of GDP since shortly after World War II. As a resultof those deficits, federal debt held by the public will soarfrom 41 percent of GDP at the end of fiscal year 2008 to60 percent at the end of fiscal year 2010. Higher debtresults in permanently higher spending to pay interest onthat debt (unless the debt is later paid off). Federal inter-est payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to2.5 percent by 2020.
1.Those projections appear in Congressional Budget Office,
The Long-Term Budget Outlook 
(June 2009).
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...