Presentation by Keith Hall, CBO Director, to the American Academy of Actuaries. In fiscal year 2016, the federal budget deficit increased, in relation to the size of the economy, for the first time since 2009, according to the Congressional Budget Office’s estimates. If current laws generally remained unchanged, the deficit would grow over the next 10 years, and by 2026 it would be considerably larger than its average over the past 50 years, CBO projects. Debt held by the public would also grow significantly from its already high level. To analyze the state of the budget in the long term, CBO has extrapolated its 10-year baseline projections an additional two decades. If current laws governing taxes and spending remain in place, the outlook for the budget would steadily worsen over the long term, with revenues falling well short of spending. In those projections, federal debt held by the public rises to 141 percent of GDP in 2046. 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.

1. Congressional Budget Office
Understanding the 2016 Budget Outlook
Presentation to the American Academy of Actuaries
Washington, D.C.
November 4, 2016
Keith Hall
Director
This presentation draws on An Update to the Budget and Economic Outlook: 2016 to 2026 (August 2016),
www.cbo.gov/publication/51908; The Long-Term Budget Outlook (July 2016), www.cbo.gov/publication/51580;
Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2016 to 2026 (March 2016),
www.cbo.gov/publication/51385; and related CBO publications.

2. 1CONGRESSIONAL BUDGET OFFICE
CBO’s Budget Projections Through
2026 as of August 2016

3. 2CONGRESSIONAL BUDGET OFFICE
CBO provides objective, nonpartisan
information to the Congress.
CBO produces estimates of the effects of
changes in federal policies and makes
baseline projections of federal spending,
revenues, and deficits under current law.

4. 3CONGRESSIONAL BUDGET OFFICE
Total Deficits or Surpluses
Percentage of GDP
Actual Projected
Deficits
Surpluses
Average Deficit,
1966 to 2015
(-2.8%)
1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026
-10
-8
-6
-4
-2
0
2
4

5. 4CONGRESSIONAL BUDGET OFFICE
Total Revenues and Outlays
Percentage of GDP
1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026
0
4
8
12
16
20
24
28
Outlays
Revenues
Average Outlays,
1966 to 2015
(20.2%)
Average Revenues,
1966 to 2015
(17.4%)
Actual Projected

6. 5CONGRESSIONAL BUDGET OFFICE
Major Changes in Projected Revenues From 2016 to 2026
Percentage-Point Change
Revenues as a
Percentage of GDP Major Reasons for Change
Individual Income Taxes
• Real bracket creep
• Increased distributions from
retirement accounts, relative to GDP
• Rising income inequality
Payroll Taxes
Corporate Income Taxes
Federal Reserve
Remittances
2016
8.5 9.8
6.1 5.8
1.6 1.6
0.6 0.3
2026
Rising income inequality
Net effect of four different changes
Return to historical averages
1.3
-0.2
-0.1
-0.4
-1.5 0 1.5

7. 6CONGRESSIONAL BUDGET OFFICE
Tax Expenditures and Other Budget Categories in 2016
Individual
Income
Tax Revenues
Payroll
Tax Revenues
All Other
Revenues
All Tax
Expenditures
Defense
Spending
Medicare Spending
Net of
Offsetting Receipts
Social Security
Spending
0
2
4
6
8
10
Corporate Income Tax
Expenditures
Payroll Tax
Expenditures
Individual Income Tax
Expenditures
Percentage of GDP

8. 7CONGRESSIONAL BUDGET OFFICE
Projected Outlays in Major Budget Categories
Percentage of GDP
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
0
1
2
3
4
5
6
7
Discretionary Major Health Care Programs
Social Security
Net Interest
Other Mandatory
6.7
6.0
5.3
2.6
2.5

9. 8CONGRESSIONAL BUDGET OFFICE
Net Federal Subsidies for Health Insurance for People
Under Age 65 (Projected as of March 2016)
Billions of Dollars
2016 2017–2026
Employment-Based Coverage 268 3,629
Medicaid and CHIPa 279 3,790
Nongroup Coverage and Basic Health Plan 48 919
Medicareb 80 979
Taxes and Penalties Related to Coverage -15 -441
______________ ______________________
Net Federal Subsidies 660 8,877
a. For Medicaid, this includes only outlays for medical services for noninstitutionalized enrollees under 65 who have full benefits.
b. Outlays for benefits net of offsetting receipts (such as premiums) for noninstitutionalized Medicare beneficiaries under 65.

10. 9CONGRESSIONAL BUDGET OFFICE
CBO usually updates its baseline projections three
times a year. The spring baseline is the major
update for the Affordable Care Act (ACA)
marketplaces.
Types of changes include these:
• Changes in law;
• Changes in CBO’s economic forecast; and
• Technical changes from new information, data,
regulations, and modeling assumptions.

11. 10CONGRESSIONAL BUDGET OFFICE
Projections of Subsidized Enrollment in the
Health Insurance Marketplaces
Millions of People
2014 2016 2018 2020 2022 2024 2026
0
4
8
12
16
20
March 2010
March 2016

12. 11CONGRESSIONAL BUDGET OFFICE
CBO’s and JCT’s Estimates of the Net Budgetary Effects of the
Insurance Coverage Provisions of the Affordable Care Act
Billions of Dollars
2014 2016 2018 2020 2022 2024 2026
March 2010 March 2016

13. 12CONGRESSIONAL BUDGET OFFICE
Factors contributing to the lower projections
include these:
• Slower-than-expected growth in enrollment
through the health insurance marketplaces;
• The slowdown in the overall growth of health
care costs; and
• The U.S. Supreme Court’s decision that made
the expansion of eligibility for Medicaid
optional for states.

14. 13CONGRESSIONAL BUDGET OFFICE
CBO’s Budget Projections Through
2046 as of July 2016

15. 14CONGRESSIONAL BUDGET OFFICE
Federal Debt, Outlays, and Revenues
Percentage of GDP
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
0
50
100
150
Federal Debt Held
by the Public
Actual Extended Baseline Projection
Outlays
Revenues

16. 15CONGRESSIONAL BUDGET OFFICE
Total Revenues
Percentage of GDP
2016
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
0
5
10
15
20
25 Actual Extended Baseline Projection
Average Revenues,
1966 to 2015
(17.4%)
2026
2046
18.2 18.2
19.4

17. 16CONGRESSIONAL BUDGET OFFICE
Sources of Growth in Federal Revenues
Between 2016 and 2046
Percentage of GDP
-1.0 -0.5 0 0.5 1.0 1.5
Growth in Total Revenues Between 2016 and 2046
Other Factors
Changes in the Distribution of Income
Aging and the Taxation of Retirement Income
Structural Features of the Individual Income Tax
(Including real bracket creep)
New and Expiring Tax Provisions
1.1
0.8
0.3
0.1
-1.0
1.2

18. 17CONGRESSIONAL BUDGET OFFICE
Components of Federal Spending
Percentage of GDP
Social Security
Other Noninterest
Spending
Major Health Care
Programs
Net Interest
Actual Extended Baseline Projection
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
15
10
5
0

19. 18CONGRESSIONAL BUDGET OFFICE
CBO expects that, between 2016 and 2046,
gross federal spending on major health
care programs as a share of GDP will
increase by 4 percentage points, from
6.1 percent to 10.1 percent.

20. 19CONGRESSIONAL BUDGET OFFICE
Of that total, 2.2 percentage points come
from excess cost growth, meaning that
spending per beneficiary, adjusted for
demographic changes, will grow more quickly
than potential GDP per capita.
The other 1.8 percentage points come from
the aging of the population, mostly because
aging makes more people eligible for
Medicare and increases costs per enrollee.

21. 20CONGRESSIONAL BUDGET OFFICE
Changes in Population, by Age Group
Millions of People Millions of People
2000 2010 2020 2030 2040
0
50
100
150
200
250
300
350
Age 65 or Older
Ages 20 to 64
Actual Projected
2000 2010 2020 2030 2040
0
10
20
30
40
50
60
70
80
90
65 to 74
75 to 84
85 to 94
95 or Older
Actual Projected

22. 21CONGRESSIONAL BUDGET OFFICE
Tax Revenues and Outlays for Social Security
Percentage of GDP
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
0
1
2
3
4
5
6
7 Actual Projected
Outlays
Tax Revenues

23. 22CONGRESSIONAL BUDGET OFFICE
Projected Spending, Revenues, and Deficits, Compared
With Past Averages
Percentage of GDP
Average,
1966–2015
2016
2046

24. 23CONGRESSIONAL BUDGET OFFICE
Federal Debt Held by the Public
Percentage of GDP
0
25
50
75
100
125
150
Civil War World War I
Great
Depression
World War II
Actual Extended
Baseline
Projection
1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 2030

25. 24CONGRESSIONAL BUDGET OFFICE
Projected Federal Debt Based on Different Rates of Labor Participation,
Productivity Growth, Interest on Federal Borrowing, and Excess Cost Growth for
Federal Spending on Medicare and Medicaid
Actual Projected
Percentage of GDP
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
0
50
100
150
200
Extended Baseline
Given Rates That Lower
Projected Deficits
Given Rates That Raise
Projected Deficits
141
196
93

26. 25CONGRESSIONAL BUDGET OFFICE
The Size of Policy Changes Needed to Make Federal Debt
Meet Two Possible Goals in 2046
39% of GDP
(Its 50-year average)
75% of GDP
(Its current level)
In 2017, that would amount to . . .
$560 billion, which is equal to $1,700 per person $330 billion, which is equal to $1,000 per person
2.9% of GDP,
which is equal to a
1.7% of GDP,
which is equal to a
16% increase in revenues
14% cut in spending
9% increase in revenues
8% cut in spending
or a or an
If lawmakers aimed for debt in 2046 to equal . . .
Each year, they would need to increase revenues or reduce noninterest spending by . . .

27. 26CONGRESSIONAL BUDGET OFFICE
Notes
Slide 6. The budgetary effects of tax expenditures were
projected by CBO using estimates from the staff of the Joint
Committee on Taxation, which were prepared before the
enactment of the Consolidated Appropriations Act, 2016, and
do not include the effects of that law.
Slide 17. Spending on major health care programs consists of
spending on Medicare (net of offsetting receipts), Medicaid,
and the Children’s Health Insurance Program, as well as
outlays to subsidize health insurance purchased through the
marketplaces established under the Affordable Care Act and
related spending.