"Political differences shouldn't prevent us from taking bold, decisive action to address America's dire financial outlook. Republicans and Democrats agree that being
"America remains on a financially unsustainable path that threatens the future stability, security, and prosperity of our economy. Interest on the debt alone will consume
"The new projections released by the CBO should serve as a stark reminder that our country is on an unsustainable economic path. The longer we wait to act, the more difficult it will become to put in place real reforms to control spending and reduce our over
"This latest CBO report indicates that we're headed down an unsustainable path that will put a damper on economic growth and hurt American workers. When a nonpartisan organization like the CBO says that Americans will pay more taxes yet our deficits will rise, something needs to be done. It's crucial that we get our spending and deficits under control so we can grow our economy and give job creators the certainty they need to expand and hire more workers." - Sen.
"I didn't come to
CBO projects that the government will collect
According to CBO, federal outlays will total
CBO projects federal revenues will total
Over the period FY 2016-2025, annual spending will outpace tax collections by a cumulative total of
For the budget year (FY 2016), CBO projects a deficit of
Debt And Interest
CBO projects that debt held by the public will follow a similar path as deficits, remaining relatively stable at about 74 percent of GDP in the near term and then rapidly growing to nearly 79 percent of GDP by FY 2025. In dollar terms, debt held by the public would increase from
Gross debt, which includes Treasury securities held by federal trust funds, will also continue to rise according to CBO. By the end of FY 2015, CBO projects a gross debt of
According to CBO, carrying these high levels of debt has negative consequences for the federal budget and the U.S. economy, including increased government borrowing crowding out private borrowing and leading to increased costs of borrowing for businesses, limits to the ability of the government to respond to crises with tax and spending policies, and increased interest payments.
The federal government is expected to spend
CBO estimates that discretionary outlays will increase from
CBO's discretionary projections include extrapolations for discretionary spending that are not limited by the BCA, most notably funding for overseas contingency operations (OCO). Under baseline construction rules, CBO projects unconstrained discretionary spending to grow at the rate of inflation annually from its last appropriated level. As such, CBO's Outlook contains
Other items exempt from the spending limits and extrapolated in the baseline include disaster relief funding (
Mandatory Spending (Non-Interest)
CBO estimates that mandatory spending will increase from
Major Health Programs The mandatory health programs (
In addition, CBO reduced its projections for the net cost of the coverage provisions of the Affordable Care Act by
First, about 2 million more people are now expected to lose their employer-sponsored coverage, a benefit loss which for some employees will be partially offset by an increase in compensation in the form of taxable wages--which increases revenues by
Second, more people than expected are choosing bronze plans, which reduces spending on the cost-sharing subsidies by
Three, the total cost of the premium tax credits fell by
Also included in the net cost of the coverage provisions is an increase in
Income Security Spending on mandatory income security programs is expected to remain relatively stable over the next six years as the economy continues its modest recovery, averaging
Social Security Disability Insurance At the end of FY 2014, the
Highway Trust Fund
The individual income tax is the largest source of federal revenue, and CBO predicts that the government's reliance on individual income tax collections will only increase over the forecast period. Wage growth that outpaces inflation will lead to "bracket creep," and the growing number of retired baby boomers receiving distributions from tax-deferred retirement accounts will accelerate the rate of growth in individual income tax receipts. As a consequence, individual income taxes will provide 48 percent of total revenue in FY 2016 (
Receipts from payroll taxes--revenues that support
Similarly, CBO expects corporate income tax receipts will ebb in the face of lower profits. After surging from 1.8 percent of GDP in FY 2015 to 2.3 percent in FY 2016 (due to the expiration of temporary tax breaks), CBO predicts corporate tax receipts will revert to the long-term trend of 1.9 percent of GDP by FY 2025. Between FY 2016 and FY 2025, CBO predicts the federal government will collect
CBO's Economic Outlook
The top-line economic estimates from this year's economic outlook are substantially lower than last year's. CBO now estimates inflation-adjusted GDP to grow by 2.9 percent in 2015, which is down from last year's forecast of 3.4 percent. The agency also sees 2016 growing by 2.9 percent. After 2016, growth rates slow: CBO projects real GDP to grow by 2.5 percent in 2017, by 2.1 percent in 2018 and 2019, and by 2.1 percent from 2020 through 2025. All of these growth rates are lower than last year's estimates.
Even these reduced growth rates represent a stronger pace of economic activity than over the past seven years. CBO sees the utilization of "slack" economic resources, primarily in labor markets, as the fuel of the short-term boom in growth. The persistent "output gap" that the economy has struggled to close since the end of the recession should be closed completely by the middle of 2017, according to the 2015 Outlook.
It is worth noting that CBO also has reduced its estimates of potential output. The long-run annual potential output of the economy measured over the period 1950 through 2014 is estimated to be 3.3 percent real (inflation-adjusted) growth per year. This level, however, may be gone forever. For the period 2008 through 2014, CBO estimates annual potential output growth at 1.8 percent; and, for the period 2015 through 2025 (the current budget window), potential output is estimated at only 2.1 percent. Much of this decline is attributed to demographic shifts, the persistence of long-term unemployment, and high labor force drop-out rates.
expects the unemployment rate to drop to 5.5 percent by the end of 2015, and to decline slightly thereafter to 5.4 percent, which it views as the natural rate of unemployment (or the rate at which demand for labor is met without strong upward pressures on wages and prices). While these unemployment levels are striking improvements over the 2010 through 2013 period, they mainly reflect the end of labor supply "slack" and the slowing in the growth of the labor force. Monthly job growth will decline from 184,000 in 2015 to 69,000 in the 2018-2019 period, before increasing to a monthly rate of 111,000 for the last five years of the forecast window.
This subsidence in the monthly growth of the labor force is accompanied by the steady decline in the labor force participation rate: by the end of 2015, 63 percent of the civilian population aged 16 and above will either be working or looking for work, and by 2025 this percentage will have fallen to 61 percent. The percentage of the population aged 16 and above that will be employed will fall from 59 percent in 2015 to 57 percent in 2025.
CBO expects key interest rates to begin rising, not only because the Federal Reserve will end its low interest rate policy but because of upward pressures on interest rates due to economic growth at the economy's potential rate. The interest rate on the bellwether 10-year Treasury note is projected to increase from an average rate of 2.5 percent in 2014 to 4.6 percent by 2025. The 3-month Treasury bill rate jumps even faster than this doubling in the 10-year note. The bill rate is expected to average 0.2 percent in 2015 before ballooning to 3.5 percent in 2018. It will average 3.4 percent thereafter.
This sharp increase in interest rates is not, however, accompanied by an equally large increase in prices. CBO expects core inflation rates to grow modestly, but not to exceed the target rates set by the Federal Reserve: about 2.0 percent for the Personal Consumption Expenditure price index and 2.4 percent for the Consumer Price Index
Read this original document at: http://www.budget.senate.gov/republican/public/index.cfm/files/serve/?File_id=ab0d4f6d-da7a-4387-92df-84bd4fbc8b82