Congressional Budget Office Testimony On US Budget Projections

This is a link to the testimony on US Budget projections to 2012 under two sets of assumptions. The baseline projections assume current law. The alternative projection makes four changes to the baseline assumption. It assumes that the Bush tax cuts are extended; We continue to index the AMT for inflation after 2011; Medicare payment rates to physicians remain the same, and that the automatic reductions in spending required by the Budget Control Act do not take place. This link summarizes the differences between the baseline projection and the alternative projection.

The conclusions are quite profound. The baseline projection, under current law, shows that the budget deficit will be a sustainable 3% of GDP. Under the alternative projection outlays under for all government programs, other than Social Security and all government funded healthcare, will fall from a 40 year average of 11% of GDP to 8%. Moreover, the budget deficit in 2022 will be an unsustainable 6.1% of GDP because entitlement spending as a percent of GDP will rise by 5.5%.

The alternatives for a sustainable budget deficit in 2022 will require federal revenues to rise above the 40 year average percent of GDP or large changes will need to be made to entitlement spending, or a combination of both. We can not have our cake and eat it as well. Government can not continue to reduce taxes and allow entitlement spending, primarily on healthcare, to increase at current rates.