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  • Washington Highlights

    CBO Projects Long-term Budget Woes

    Tannaz Rasouli, Sr. Director, Public Policy & Strategic Outreach

    The Congressional Budget Office (CBO) projects the nation’s budget outlook will worsen in future years largely as the result of the government’s spending for major health care programs and for Social Security.

    In its annual Long-Term Budget Outlook, released June 16, CBO states that the budget deficit and the federal debt held by the public “will remain roughly stable” as a share of the nation's gross domestic product (GDP) for the next several years if current laws remain generally unchanged.

    “After that, however, growing budget deficits—caused mainly by the aging of the population and rising health care costs— would push debt back to, and then above, its current high level,” CBO warns.

    CBO projects health care spending will rise significantly from 2015 through 2040 because of a combination of three factors: the aging of the population; growth in per capita spending on health care; and, to a lesser extent, an increased number of recipients of exchange subsidies and Medicaid benefits attributable to the Affordable Care Act (ACA).

    CBO states, “A crucial factor underlying the rise in per capita spending for health care during the past few decades has been the emergence, adoption, and widespread diffusion of new medical technologies and services... Many of those innovations rely on costly new drugs, equipment, and skills. Other innovations are relatively inexpensive, but their costs add up quickly as growing numbers of providers and patients make use of them. Although technological advances can sometimes reduce costs, they have generally increased total health care spending.”

    The report warns that the large amount of debt in the future “would restrict policymakers’ ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises.”

    As it has in past reports, CBO notes, “To put the federal budget on a sustainable path for the long term, lawmakers would have to make major changes to tax policies, spending policies, or both—by reducing spending for large benefit programs below the projected amounts, letting revenues rise more than they would under current law, or adopting some combination of those approaches. The size of such changes would depend on the amount of federal debt that lawmakers considered appropriate.”