Julia Lawless (202) 224-4515
Aaron Fobes (202) 224-4515
Hatch Statement on CBO’s Budget Report
WASHINGTON – Today, Senate Finance Committee Chairman Orrin Hatch (R-Utah) said the Congressional Budget Office’s (CBO) long-term budget outlook should serve as a call to action to take up meaningful structural entitlement reform. The report, which outlines how entitlement spending will cause deficits and debt to rise to unprecedented levels in the next 10 years, finds that the nation’s debt as a share of the entire U.S economy (such as the over $18 trillion of gross debt—which is more than 100 percent of the size of the economy) is already at levels not seen since the years surrounding World War II, and will soon resume its unsustainable upward trajectory.
“Today’s report provides telling context for the Administration’s claims that our deficit is under control,” Hatch said. “The CBO’s report is clear – entitlement spending, if not reformed, will drive our deficits and debt to unsustainable levels in the very near future, and unsustainable entitlement spending will continue to crowd out spending in other areas. Leaders in Washington must stop turning a blind eye to such facts and instead work together to resolve this crisis. That means taking swift action to implement systematic and meaningful reform that will strengthen the nation’s safety-net programs and guarantee their solvency for our children and grandchildren.”
Findings of the CBO report include:
Rising Deficits and Debt: While deficits have temporarily receded toward the average of the past 50 years, because of tax hikes and modest spending restraint, they: are on course to rise again to exceed $1 trillion; will cumulate over 2016-2025 to $7.6 trillion; and will push debt even higher.
High and Unsustainable Debt: CBO projects that federal debt held by the public will be above 74 percent of the size of the economy (i.e., the “gross domestic product,” or GDP) at the end of this fiscal year—more than twice what it was at the end of 2007 and higher than in any year since the years surrounding World War II.
Our debt is on an unsustainable long-term trajectory, with federal debt held by the public soaring to almost 79 percent of the size of our economy by 2025.
According to CBO: “Such large and growing federal debt would have serious negative consequences, including increasing federal spending for interest payments; restraining economic growth in the long term; giving policymakers less flexibility to respond to unexpected challenges; and eventually heightening the risk of a fiscal crisis. “ As CBO puts it: “Continued growth in the debt might lead investors to doubt the government’s willingness or ability to pay its obligations, which would require the government to pay much higher interest rates on its borrowing.”
Large Increase in Spending, Especially Entitlements: Federal spending rose in 2014, to $3.5 trillion, and spending as a share of the economy, at 20.3 percent, was above the average over the past 50 years. Outlays are projected to rise to more than 22 percent of the size of the economy by 2025, well above the long-run average.
Under current law, spending will grow faster than the economy for: Social Security; the major health care programs, including Medicare, Medicaid, and subsidies offered through insurance exchanges; and interest costs. For example, spending for Social Security is projected to rise at an average annual rate of 5.9 percent; and for the major health care programs at an average annual rate of 6.4 percent. Spending that grows faster than growth in the economy is ultimately unsustainable.
In contrast to entitlement spending that will outpace growth of the economy, mandatory spending other than that for Social Security and health care, along with both defense and nondefense discretionary spending, will shrink relative to the size of the economy. Unsustainable entitlement spending growth will continue to squeeze other components of spending, including discretionary spending on things like education, defense, and discretionary elements of the social safety net.
Runaway Entitlements Increasingly Choke Off Discretionary Spending: According to CBO’s latest projections, federal spending for Social Security, the major health care programs—Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through exchanges created by the Affordable Care Act—and net interest all account for nearly 85 percent of the total increase in outlays that CBO projects over the coming decade. Relative to the size of the economy: outlays for Social Security are projected to rise from 4.9 percent in 2016 to 5.7 percent by 2025; outlays for the major health care programs are projected to rise from 5.3 percent in 2016 to 6.2 percent by 2025; and outlays for net interest will double from 1.5 percent in 2016 to 3.0 percent by 2025. In contrast, all other spending is projected to decline from 9.2 percent of GDP to 7.4 percent in 2025.
Revenues Scheduled to Rise Above Historic Norms: Federal revenues as a share of the economy are projected by CBO to grow from 17.7 percent in 2015 to 18.4 percent in 2016 and will then remain above 18.0 through 2025 and beyond. Those shares are well above the average 17.4 percent federal taxes as a share of the economy that prevailed over the past 50 years.
We Have a Spending Problem, Not a Revenue Problem: CBO’s message is clear: Continuing on our current path, driven by unsustainable, runaway entitlements, federal spending rises sharply to outpace revenues, which themselves will rise well above the historic norm, driving our deficits and debt ever upward.
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