• CBO long term budget outlook, 2011

    The CBOs long term budget outlook is out. They always provide projections based on the continuation of current law (called their Extended Baseline Scenario-solid blue line). They also produce what they call the Alternative Fiscal Scenario (dashed blue line), which is basically a worst case, or at least a really bad set of assumptions.

    The scary thing about the Alternative Fiscal Scenario is how politically plausible are the big picture assumptions that define this scenario that shows our cumulative debt being over 175% of the GDP in 2035. Essentially, the alternative fiscal Scenario assumes

    • extension of the current tax rates so that tax revenue remains around 18% of GDP (historical average)
    • that we do not cut Medicare’s payment rates for physicians by about a third, as under current law
    • That policies in the ACA that are projected by CBO to slow health care growth are discontinued after 2021
    • Discretionary spending (like Military) is higher than assumed under the extended-baseline scenario (but still historically low)

    If the past is the only predictor of the future…..it is hard to be optimistic. We will never get our fiscal house in order without raising taxes, doing the hard parts of health reform (and even more), addressing Social Security and substantially reducing Military expenditures.

    The current budget debate is disconnected from these realities. We are talking mostly about large cuts in small discretionary programs, but not dealing with the major long term issues, like raising taxes and developing some political consensus for how to implement health reform.

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    • Hi Don,

      I have heard it claimed that the CBO projections do not account for increasing interest payments on the debt, and that even under the extended baseline scenario these rise to something like 4% of GDP within 10 years. I lack the ability to evaluate this claim myself; can you comment?