Long Term Budget Outlook

CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE

CBO
The 2012 Long-Term Budget Outlook
Federal Debt Held by the Public, 1912 to 2037
Percentage of GDP 200

Actual

Projected

150

100

Extended Alternative Fiscal Scenario Extended Baseline Scenario

50

0 1912

1922

1932

1942

1952

1962

1972

1982

1992

2002

2012

2022

2032

RevenuesMinus Noninterest Spending, 2000 to 2037
Percentage of GDP 10

Actual

Projected

Actual

Projected

5

0

-5

-10 2000

2010

2020

2030

2000

2010

2020

2030

Extended Baseline Scenario

Extended Alternative Fiscal Scenario

JUNE 2012

Notes
Unless otherwise indicated, in most of this report, the years referred to are federal fiscal years (which run fromOctober 1 to September 30). In Chapter 2, budgetary variables such as the ratio of debt or deficits to gross domestic product are presented on a fiscal year basis, whereas economic variables such as gross national product or inflation are presented on a calendar year basis. Numbers in the text and tables may not add up to totals because of rounding. On the cover, the figure in the top panel showsfederal debt held by the public under the Congressional Budget Office’s (CBO’s) extended baseline scenario and extended alternative fiscal scenario. The figures in the bottom panel show federal revenues minus noninterest spending under those two scenarios. The extended baseline scenario generally adheres closely to current law, following CBO’s 10-year baseline budget projections through 2022 andthen extending the baseline concept for the rest of the long-term projection period. The extended alternative fiscal scenario incorporates the assumptions that certain policies that have been in place for a number of years will be continued and that some provisions of law that might be difficult to sustain for a long period will be modified. Additional data, including the data underlying thefigures in the report, supplemental budgetary projections, the economic variables underlying the projections, and projections of the total population, are posted along with this report on CBO’s Web site (www.cbo.gov). Many of the terms used in the report are defined in a glossary available on the Web site.

CBO

Pub. No. 4507

Contents
Summary 1

1 2 3 4

The Long-Term Outlook for theFederal Budget Alternative Scenarios for the Long-Term Budget Outlook The Long-Term Outlook for Spending Box 1-1. How the Aging of the Population and Rising Costs for Health Care Affect Federal Spending on Major Health Care Programs and Social Security The Long-Term Outlook for Revenues The Long-Term Fiscal Imbalance The Uncertainty of Long-Term Budget Projections

5 6 11 14 17 18 21

The EconomicImpact of Long-Term Budget Policies CBO’s Long-Term Economic Benchmark How Changing Debt and Marginal Tax Rates Would Affect Output Economic Effects of the Fiscal Policies in CBO’s Long-Term Budget Scenarios The Effects of Waiting to Resolve the Long-Term Budgetary Imbalance Other Consequences of Rising Federal Debt

29 31 34 37 41 43

The Long-Term Outlook for Major Federal Health CarePrograms Overview of Major Government Health Care Programs The Historical Growth of Health Care Spending CBO’s Methodology for Long-Term Projections Long-Term Projections of Spending for Major Health Care Programs Box 3-1. National Spending on Health Care

45 46 51 54 57 60

The Long-Term Outlook for Social Security How Social Security Works The Outlook for Social Security Spending and Revenues63 63 65

CBO

II

THE 2012 LONG-TERM BUDGET OUTLOOK

5 6 A B

The Long-Term Outlook for Other Noninterest Federal Spending Other Noninterest Federal Spending Over the Past Four Decades Projections of Other Noninterest Federal Spending Under CBO’s Long-Term Budget Scenarios

71 72 73

The Long-Term Outlook for Federal Revenues Revenues Over the Past 40 Years Revenue Projections...