Yesterday’s CBO report shows smaller budget deficit this year than projected, with the red ink shrinking from $560 billion to $540 billion. That’s down from $680 billion in FY2013 and will continue to decline in FY2015, but the improvement will be short-lived, with the deficit rising again in FY2016. In FY2024, the deficit is projected to be $1.074 trillion, and total deficits over the next ten years will be $1 trillion higher than had been projected last year.
Why? The CBO explains:
Those changes result from revisions to CBO’s economic forecast; newly enacted legislation; and other, so-called technical factors, such as new information about recent spending and tax collections.
Most of the increase in projected deficits results from lower projections for the growth of real GDP and for inflation, which have reduced projected revenues between 2014 and 2023 by $1.4 trillion. Legislation enacted since May has lowered projected deficits during that period by a total of $0.4 trillion (including debt-service costs). Other changes to the economic outlook and technical changes have had little net effect on CBO’s deficit projections.
The CBO estimates that debt as a share of GDP will follow roughly the same pattern as deficits: a slight decline before resuming its steady increase. But in nominal terms, our federal debt held by the public keeps growing rapidly, from $12.7 trillion today to $21.2 trillion in 2024.
Our long-term budget outlook remains remarkably gloomy, thanks to the spending on programs like Social Security, Medicare, Medicaid, and Obamacare. If you want to get really scared, a new paper released from the Mercatus Center by Boston University’s Lawrence Kotlikoff shows an off-the-books fiscal gap of roughly $200 trillion.
Such long-term estimates can be subjected to variations — but so are CBO numbers. For instance, the CBO reports that revenues over the next ten years are going to be $1.6 trillion lower than previously expected, because of worse economic projections. In its projections for 2015, for instance, the CBO sharply cut its projections of U.S. GDP growth in 2015, by a full percentage point, to 3.4 percent.
The CBO also cut its projections of the number of people who would sign up for health insurance through Obamacare this year, from 7 million to 6 million. It assumes that the individual mandate will take effect and bring in $2 billion in revenues in 2014 and $52 billion over ten years; it also projects that the employer mandate will be implemented in 2015 and will raise $151 billion over the decade. But that’s all assuming these programs are implemented as planned, something on which the Obama administration has a terrible track record.
Last but not least, the CBO founds that the number of people out of the workforce will be at an all-time high in 2021, in part because of Obamacare.
In 2011, the CBO estimated the law would cause a reduction in the work force of about 800,000 full-time equivalent workers — today, that number is projected to be about 2.5 million full-time workers or their equivalents. In other words, Obamacare creates much bigger disincentives to work than originally projected, which should have some negative impact on economic growth.
The White House, however, thinks that this is a good thing. As Manhattan Institute’s Avik Roy wrote yesterday:
Such a sizeable decline in the labor force will have substantial detrimental effects on the U.S. economic and fiscal picture. But the CBO wasn’t responsible for the most amazing thing that happened yesterday. That title belongs to the Obama White House, where Press Secretary Jay Carney claimed that 2.5 million Americans leaving the workforce was a good thing, because they would no longer be “trapped in a job.”
Ignoring the WH cheerleading squad: A summary of this CBO report shows that while our short-term outlook is slightly better, we have serious reasons to worry about our long-term fiscal health –and more reasons to worry we won’t get the economic growth we’ll need to cure it.