CBO Briefing on the Federal Budget Dec 4 2013
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  • 1. Congressional Budget Office December 4, 2013 Overview of the Federal Budget National Conference of State Legislatures Fall Forum Jeff Holland Chief, Projections Unit
  • 2. Budget Totals, 2009, 2013, 2015 Billions of Dollars Actual, 2009 Total Revenues Total Outlays Actual, 2013 2,105 Percentage of GDP 2015 Actual, 2009 Actual, 2013 2015 2,774 3,399 14.6 16.7 18.6 Total Deficit 3,518 3,454 3,777 24.4 20.8 20.7 _____________________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ____________________________________________________________________ _________________________________________________________________ _________________________________________________________________ -1,413 -680 -378 -9.8 -4.1 -2.1 CONGRESSIONAL BUDGET OFFICE 1
  • 3. Upcoming Decisions Facing Lawmakers ■ Appropriations for fiscal year 2014 (January 2014) ■ Statutory limit on federal debt (February 2014) ■ Longer-term budget issues posed by the large current and projected federal debt and the implications of rising health care costs and the aging population CONGRESSIONAL BUDGET OFFICE 2
  • 4. Federal Budget Deficits or Surpluses (Percentage of gross domestic product) 4 4 Actual Baseline Projection Surpluses 0 0 -4 -4 Deficits -8 -12 -8 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023 -12 The deficit figure for 2013 comes from the Final Monthly Treasury Statement released on October 30, 2013. CONGRESSIONAL BUDGET OFFICE 3
  • 5. Total Revenues and Outlays (Percentage of gross domestic product before BEA revisions) 26 26 Actual Projected Average Outlays, 1973 to 2012 (21.0%) 24 24 Outlays 22 22 20 20 18 18 16 16 Average Revenues, 1973 to 2012 (17.9%) 14 0 1973 1978 1983 1988 1993 1998 Revenues 2003 2008 CONGRESSIONAL BUDGET OFFICE 14 2013 2018 -0 2023 4
  • 6. Debt Held by the Public and Net Interest (Billions of dollars) 25,000 1,000 900 20,000 800 700 Debt Held by the Public (Right axis) 15,000 600 500 10,000 400 Net Interest (Left axis) 300 5,000 200 100 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 CONGRESSIONAL BUDGET OFFICE 2022 2023 0 5
  • 7. Revenues, by Major Source (Percentage of gross domestic product) 12 Actual 12 Projected 10 10 Individual Income Taxes 8 8 6 6 Social Insurance (Payroll) Taxes 4 4 Corporate Income Taxes 2 2 Other Revenue Sources 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 CONGRESSIONAL BUDGET OFFICE 2018 2020 2022 0 6
  • 8. Selected Major Tax Expenditures in 2012, Compared with Other Categories of Revenues and Outlays (Percentage of gross domestic product before BEA revisions) 8 8 Revenues Outlays 6 6 Payroll Tax Expenditures 4 4 Individual Income Tax Expenditures 2 0 2 Individual Income Taxes Social Insurance Taxes Corporate Income Taxes and Other Revenues Selected Major Tax Expenditures Medicare CONGRESSIONAL BUDGET OFFICE Defense Social Security 0 7
  • 9. Effect of Selected Major Tax Expenditures, 2013 to 2022 CONGRESSIONAL BUDGET OFFICE 8
  • 10. Projected Spending for Major Budget Categories (Percentage of gross domestic product before BEA revisions) 7 7 6 5 4 3 6 Major Health Care Programs Defense Discretionary Spending 4 3 Nondefense Discretionary Spending Other Mandatory Spending 2 Net Interest 1 0 2012 5 Social Security 2013 2014 2015 2016 2 1 2017 2018 2019 2020 CONGRESSIONAL BUDGET OFFICE 2021 2022 0 2023 9
  • 11. Federal Debt Held by the Public Under CBO’s Extended Baseline (Percentage of gross domestic product) CONGRESSIONAL BUDGET OFFICE 10
  • 12. The Projection of Debt ■ Current debt is very high by historical standards. ■ Discretionary spending is projected to decline to historically low levels. ■ The 10-year horizon does not fully reflect long-term pressures. CONGRESSIONAL BUDGET OFFICE 11
  • 13. Why Does Rising Federal Debt Matter? ■ Tax revenues are used to pay interest rather than to finance current programs. ■ Crowding out of saving and investment lowers future output and income relative to what would otherwise occur. ■ The ability of the government to respond to future challenges is reduced. ■ The risk of a sharp jump in interest rates (perhaps related to flight from U.S. Treasuries or U.S. assets more generally) is heightened. CONGRESSIONAL BUDGET OFFICE 12
  • 14. Population Age 65 or Older as a Share of the Population Ages 20 to 64 (Percent) 40 Actual 40 Projected 30 30 20 20 10 10 0 2000 2005 2010 2015 2020 2025 CONGRESSIONAL BUDGET OFFICE 2030 2035 0 13
  • 15. Spending for Social Security Under CBO’s Extended Baseline (Percentage of gross domestic product) 7 Actual 7 Projected 6 6 5 5 4 4 3 3 2 2 1 1 0 2000 2005 2010 2015 2020 2025 CONGRESSIONAL BUDGET OFFICE 2030 2035 0 14
  • 16. Federal Spending on Major Health Care Programs, by Category, Under CBO’s Extended Baseline (Percentage of gross domestic product) CONGRESSIONAL BUDGET OFFICE 15
  • 17. Spending and Revenues Under CBO’s Extended Baseline (Percentage of gross domestic product) Major Health Care Programs Social Security Average, 1973–2012 4.2 2013 4.9 2038 Other Noninterest Spending 11.2 2.7 10.0 4.6 6.2 8.0 Total Outlays 7.1 Total Revenues 20.4 17.4 2013 20.8 17.0 26.2 2.2 1.3 4.9 Deficit Average, 1973–2012 2038 Net Interest 19.7 -3.0 -3.9 -6.4 CONGRESSIONAL BUDGET OFFICE 16
  • 18. Conclusion Given the aging of the population and rising costs for health care, attaining a sustainable federal budget will require the United States to deviate from the policies of the past 40 years in at least one of the following ways: ■ Raise federal revenues significantly above their average share of GDP ■ Make major changes to Social Security and federal health care programs ■ Pursue some combination of the two approaches CONGRESSIONAL BUDGET OFFICE 17