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FREEDOM PARTNERS
ANALYSIS OF CBO 2017
LONG-TERM BUDGET
OUTLOOK
Michael Decker, Senior Research Analyst
M
arch 30, the Congressional Budget Office (CBO) released its 2017 Long-Term
Budget Outlook, which projects federal spending, tax collections, and various
economic indicators from 2017 to 2047. This marks the first long-term report
issued during the Trump administration and paints a troubling outlook for the country in the
decades to come.
According to the report,
“If current laws generally remained unchanged, the Congressional
Budget Office projects, growing budget deficits would boost that debt sharply
over the next 30 years; it would reach 150 percent of GDP in 2047. The
prospect of such large and growing debt poses substantial risks for the nation
and presents policymakers with significant challenges…Such high and
rising debt would have serious budgetary and economic consequences.”i
With a new administration, Congress has the opportunity to adapt policies that curb
government debt, spur economic growth, and reduce regulatory burdens for families and
individuals. Some of these policies could include eliminating wasteful spending programs,
repealing the Affordable Care Act, and continuing to roll back impeding regulations. ii,iii,iv
Here are the facts from the report:
INCREASED GOVERNMENT SPENDING
According to the March 2017 long-term budget update, the CBO extended baseline predicts
annual government spending will increase 56 percent over the next decade from roughly $4
trillion this year to $6.2 trillion by 2026.v Further, the CBO projects annual federal spending
will increase to more than $18 trillion by 2047, representing nearly a third of the size of the
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economy. According to the report, “By 2047,
net interest costs would be 6.2 percent of GDP,
raising total federal spending to more than 29
percent of GDP. Such spending constituted a
larger share of the economy only for a single
three-year period during World War II, when
defense spending increased sharply. For those
years, it exceeded 40 percent.”
Government Spending On Net Interest
And Entitlements Over Time
Percentage of Total Federal Spending
80%
75%
70%
65%
60%
55%
2047
2046
2045
2044
2043
2042
2041
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
Social Security
Breaking down annual outlays, net spending
on mandatory programs like Social Security
and Medicare will increase from nearly $2
Mandatory Programs and Net Interest Payments
trillion this year to roughly $3.4 trillion by
2026, or 12.6 percent of GDP. By 2047,
spending on mandatory programs is projected to represent more than one-out-of-every-two dollars the government spends.
When incorporating interest payments to service the national debt, this grows to nearly three-out-of-every-four total federal
dollars spent in 2047. CBO reports, “On average, federal outlays for Social Security and Medicare made up almost 40 percent
of total noninterest spending during the past 10 years, compared with 16 percent 50 years ago.”vi
Source: Freedom Partners Analysis,
Congressional Budget Office March 2017
2047
2046
2045
2044
2043
2042
2041
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
Trillions of Dollars
TRILLION DOLLAR DEFICITS
Although deficits decrease in the short-term,
Annual Budget Shortfalls Surpass $6 Trillion By 2047
the CBO estimates the government will run a
$6
cumulative budget shortfall of nearly $9 trillion over the next decade. By 2023, annual
$5
government deficits are projected to reach
$4
$1 trillion and continue to rise through 2026
$3
when the government is projected to end
the year roughly $1.3 trillion over budget.
$2
Looking further, deficits continue to rise at
$1
a more than 7 percent average annual rate
0
between 2027 and 2047, leading to a government shortfall nearly one-tenth of the size of
Annual Budget Deficits
the economy. The CBO notes the continued
growth in spending – specifically for Social
Security, Medicare, and net interest on the national debt – eventually outpaces tax collections and leads to larger deficits and
higher debt.vii
Source: Freedom Partners Analysis,
Congressional Budget Office March 2017
SLOW ECONOMIC GROWTH
The economy is projected to grow by 2.3 percent this year, up from the 1.6 percent real GDP growth observed during 2016. viii
Despite this increase, the CBO projects annual real GDP growth will decrease to 2 percent during 2018 and further drop to an
annual average of 1.6 percent between 2019-2020. Overall, real annual GDP growth is expected to average only 1.9 percent
over the next decade. Looking further, real annual GDP growth averages a meager 2 percent from 2027-2047.ix
The CBO notes, “...potential (maximum sustainable) growth in GDP in the future will be slower than it has been over the past
50 years. Under its extended baseline, CBO projects an increase in real (inflation-adjusted) potential GDP of 1.9 percent per
year, on average, over the next 30 years, compared with 2.9 percent over the past 50 years.” This slow annual growth projection
offers little hope for an economy that is still struggling through the weakest expansion since 1949.x
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UNSUSTAINABLE FEDERAL DEBT
According to CBO’s March estimate, debt
held by the public will increase from more
than three-fourths the size of the size of the
economy this year, to 87 percent of GDP by
2026. Over this period total debt held by the
public will increase more than $8 trillion, or
58 percent.
Per Person Share Of National Debt
Grows To Over $235K By 2047
$240,000
$220,000
Debt Per Person
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
Further, CBO notes the extended projections
show “a substantial imbalance in the federal
budget over the next three decades…” By
Debt Held by the Public
2033, debt held by the public grows larger
than the size of the entire economy and
continues to increase through 2047. This represents the highest levels of debt seen since World War II, where debt held by the
public reached 106 percent of GDP. xi
2045
2046
2047
2044
2043
2042
2040
2041
2039
2037
2038
2036
2034
2033
2035
2031
2032
2029
2030
2027
2028
2026
2024
2025
2022
2023
2021
2019
2017
2018
$40,000
2020
$60,000
Source: Freedom Partners Analysis,
Congressional Budget Office March 2017
For years the CBO has analyzed the potential consequences of leaving federal debt unchecked. xii Last summer, the CBO
warned that large and growing debt could hurt the economy and constrain future budget policy. This in turn would “limit
lawmakers’ ability to respond to unforeseen events; and increase the likelihood of a fiscal crisis…” xiii In 2014, CBO analysts
explained how large amounts of government debt could reduce national savings and income, as well as draw money away from
private investment.xiv
The effects of these poor spending policies, which lead to high amounts of public debt, can negatively impact individuals
and families. Argentina and Greece serve as important reminders of what large amounts of government debt can do to the
economy.
CONSEQUENCES OF HIGHER DEBT SEEN THROUGH GREECE AND ARGENTINA
As we saw in Argentina and Greece, a large amount of
government debt has several negative impacts that effect the
entire population.
Argentina
During the Argentina debt crisis in the early 2000s, in which
the government’s debt-to-GDP ratio reached 152 percent,
currency devaluation led the country’s 1:1 exchange with the
U.S. dollar to drop to 4:1. Simultaneously, inflation reached
41 percent by 2002—a stark contrast from the low or negative
inflation rates seen during the early 1990s.xv, xvi
As the Argentinian economy began to collapse, unemployment
increased to more than 22 percent by 2002, while more than
57 percent of the population slipped below the poverty line.
A decade later, Greece experienced similar negative effects
when its debt-to-GDP ratio soared to 180 percent. During
the crisis, the country’s unemployment rate skyrocketed from
nearly 13 percent in 2010 to over 27 percent by 2013.xix, xx
Debt:
152 Percent of GDP by 2002
Unemployment:
22.5 Percent by 2002
Greece:
Debt:
180 Percent of GDP by 2014
Unemployment:
26.5 Percent by 2014
United States:
Debt:
150 Percent of GDP by 2047
Unemployment:
?????
Source: International Monetary Fund
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In order to combat the devastating effects of an increasing national debt, cuts to mandatory spending programs as well as sales
tax increases were instituted in these two countries. Greece enacted a series of “austerity cuts,” cutting pension payments of
2,000 euros per month by 40 percent, and payments of 1,000 euros per month by 14 percent. Further, Greece increased its
sales tax rate from 13 to 23 percent in 2015, costing Greeks an additional $1,635 per person annually. This sharp rise in taxes
caused prices for commodities such as meat, sugar, and bread to increase 9 percent.xxii
Argentina similarly cut pension payments and by the peak of the crisis taxed Social Security and medical care by nearly 32
percent.xxiii, xxiv
WITHOUT PASSING MEANINGFUL REFORMS WE ARE HEADING TOWARDS BANKRUPTCY
Today’s CBO report confirms the U.S. is on an unsustainable path that will soon crush our economy and will hurt millions of
hardworking Americans. During the Obama years, overall government spending exploded, leading to annual deficits in the
trillions of dollars and to the national debt doubling. Year after year, President Obama kept asking for more spending – and
more taxing.
Under a new administration, Congress has the opportunity to pass a sensible budget that enacts meaningful spending reforms
and sets forth a plan to address long-term debt and the looming entitlement crisis. Ultimately, that will be the only way to truly
relieve the burden of trillion dollar deficits looming over taxpayers and weighing on the economy. This is an opportunity for
Congress and President Trump to come together and truly secure America’s fiscal future.
Without making significant and meaningful reforms, the national debt will continue to skyrocket, unemployment and poverty
will rise, and America won’t be great – it will be bankrupt.
i.
Report, “The 2017 Long-Term Budget Outlook,” The Congressional Budget Office, 3/30/17.
ii.
Fact Sheet, “Tax Reform Can Happen Without Border Adjustment,” Americans For Prosperity, 2017.
iii.
Report, “Health Care: A Targeted Approach,” Freedom Partners, 1/30/17.
iv.
Report, “A Roadmap To Repeal: Removing Barriers To Opportunity,” Freedom Partners, 1/6/17.
v.
CBO, 2017 Long-Term Budget Outlook. Unless otherwise noted, all dollar figures listed in this report are derived by converting CBO’s estimates of “percentages of GDP” to dollars using Nominal GDP projections.
vi.
CBO, 2017 Long-Term Budget Outlook.
vii.
Ibid.
viii. 2016 Annual Real GDP, “Percent Change From Previous Period,” Bureau Of Economic Analysis, Accessed 3/30/17.
ix.
CBO, 2017 Long-Term Budget Outlook.
x.
Jeffrey Sparshott, “U.S. GDP Advanced 1.9% In Final Quarter Of 2016,” Morningstar, 2/28/17.
xi.
CBO, 2017 Long-Term Outlook.
xii.
Report, “The 2015 Long-Term Budget Outlook,” The Congressional Budget Office, 6/16/15.
xiii. Report, “The 2016 Long-Term Budget Outlook,” The Congressional Budget Office, 7/8/16.
xiv. Report, “The 2014 Long-Term Budget Outlook,” The Congressional Budget Office, 7/15/14.
xv.
Historical Public Debt Database (HPDD), “Argentina Debt To GDP Ratio,” International Monetary Fund, Accessed 3/29/17.
xvi. Jim Saxton, “Argentina’s Economic Crisis: Causes And Cures,” Joint Economic Committee, June 2003
xvii. Argentina Unemployment Rate: Percent Of Total Labor Force: 1990-2014, International Monetary Fund, Accessed 3/29/17.
xviii. Saxton, JEC.
xix. Historical Public Debt Database (HPDD), “Greece Debt To GDP Ratio,” International Monetary Fund, Accessed 3/29/17.
xx.
Greece Unemployment Rate: Percent Of Total Labor Force: 2008-2015, International Monetary Fund, Accessed 3/29/17.
xxi. Alanna Petroff, “How To Fix Greece’s Big Pension Problem,” CNN Money, 7/15/15.
xxii. Holly Ellyatt, “How Greek Firms Are Coping With Massive Tax Hikes,” CNBC, 7/20/15.
xxiii. Boris Korby & Katia Porzecanksi, “Argentina Bust Lures Investors After 200 Years Of Defaults,” Bloomberg, 2/3/14.
xxiv. Steve Hanke, “Argentina’s Current Political-Economic Crisis,” Cato Institute, 3/5/2002.
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